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Crypto Market Crash: What Should Investors Do?

Crypto Market Crash: What Should Investors Do?

Crypto Market Crash: What Should Investors Do?

*This is in partnership with BQ Prime Brand Studio

The crypto winter is clearly here. Bitcoin is down to $22000 from a high of $69000 just last year. The global crypto market has shrunk to $949 billion, sharply down from the $3 trillion high in 2021.

What should investors do in this scenario, which seems extremely scary at first glance? The fact is, crypto has gone mainstream and even investors in B and C class cities in India have taken to crypto. Hence, this question affects millions of Indian investors.

First, this downturn is not just a crypto winter. Stocks are being battered around the world too and indexes are awash in red given the geopolitical scenario and what seems like rampant inflation across economies. Second, since virtual digital assets are a whole new asset class, crypto is definitely more volatile than any other asset class and this is not a surprise for seasoned crypto investors.

History bears this out. Bitcoin crashed 83% in the crypto bear market around four to five years ago, down to nearly $3000. But from there it did go to a high of $69000 in 2021. Ethereum dropped even further during that time—a massive 94% crash. And if you go even way back—into the crypto bear market from 2013 to the middle of the decade, Bitcoin fell more than 80%. Clearly, the trend shows that crypto falls to extreme lows during bear markets, but also rises to extreme highs during bull markets.

Venture Capital firm Andreessen Horowitz published the 2022 State of Crypto Report recently which throws more light on this trend. Andreessen Horowitz says that markets are seasonal and crypto is no exception. The writers point out that investors faced crypto bear markets in 2011, 2013, and 2017. But if someone zooms out and looks at the complete picture, there is actually growth. “These cycles appear chaotic from the outside but have an underlying order,” the report revealed.

Volatility is at the heart of crypto as it is still a fairly new asset class, and as much as it has the ability to rattle investors it is also what attracts investors looking to grow their wealth rapidly. But any serious crypto investor must respect volatility and understand the risk that volatility carries—if you are getting into crypto just to get rich quickly, the fact is that you could lose your shirt equally quickly. But those who hold on for the long term have definitely seen significant gains. At the end of the day, investing in crypto is not for the faint-hearted. If every ebb and flow gives you palpitations, then you may be prone to making decisions based on fear and crypto may be an asset class you should avoid.

Here are some imperatives investors should keep front and centre as they navigate their way in the current crypto winter:

There’s no alternative to research

There are over 18000 varieties of crypto out there. The only way to stand a high chance of getting it right is to understand each crypto asset you plan to invest in. Review the highs and lows and their possible long-term effects in preparation for a bear market. Assess the whitepaper before placing any bets on any given asset as this is the most crucial information you will require if you run into any technical hurdles.

Make well-informed decisions rather than giving in to FOMO (fear of missing out) and blindly following market sentiment.

Diversify is the mantra

Any smart investor knows that diversification is the key to a healthy portfolio, be it in traditional financial markets or crypto. Through diversification, an investor safeguards investments and hedges, because he/she is not putting all hopes on any one asset class. And when crypto is shooting up in value don’t move all your investments into crypto—that’s greed and greed rarely plays out well. Allocate wisely towards each asset in your basket to avoid long-term risks and make sure assets in your basket are always balanced vis-à-vis your diversification goals. Be aware of your risk appetite and invest accordingly.

Long-term horizons may be rosier

While everyone has some short-term investments in their basket and some long-term ones, given crypto volatility and the need to hang on during bumpy rides like the one we are witnessing today, perhaps crypto investors should be focused on the long term. And while there is wisdom in the call to continue to invest (albeit cautiously) even during bear markets, make sure that your decision is informed by your risk appetite, reason and rational thinking and not dictated by emotions or what others may say.

The platform you choose to invest in is equally important. For instance, WazirX offers more than 250 cryptos to invest in, and investors can start investing with very small amounts—as little as Rs 100. Moreover, even as the exchange operates 24x7, there is 24x7 customer support too.

Disclaimer: Cryptos and other virtual digital assets are unregulated in India and can be highly risky. They are not legal tender, and any investment is subject to market risks.