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Since its start in 2009, the Bitcoin and cryptocurrency markets have experienced several cycles of ups and downs, even within more extensive long-term patterns known as bull and bear markets.
While each market downturn has been followed by a comeback and strong growth, periods of fall can be stressful and challenging to manage for both seasoned traders and new investors.
In this article, we will look at four strategies to consider during a market downturn in order to protect the value of your portfolio, avoid emotional trading, and sleep better.
Don’t cave to FOMO or FUD
Staying up to date on the latest news and developments in the cryptocurrency field is critical, but having too much knowledge may be detrimental.
This is especially important during market downturns when it is all too easy to be misled by your gut and make reckless decisions.
FOMO (fear of missing out) and FUD (fear, uncertainty, and doubt) are well-known phrases in the crypto realm, and they may have a more significant effect on our purchasing buying than many of us would like to acknowledge.
FUD is a lousy market mood produced by a rumor, an unfavorable news story, or a notable individual expressing concerns about a specific market or asset. It may adversely impact the price since traders sell their shares in anticipation of additional price declines.
On the other hand, FOMO happens when traders get carried away by wishful thinking after seeing favorable market movement or news, often neglecting fundamental signs in a rush to board the next train.
Note: No one can foretell the future, and no single person’s counsel is better than your own research and conclusions.
In some situations, influencers and publications may be vested in spreading FUD or FOMO to move markets in a specific direction.
When learning about the newest developments in bitcoin markets, always seek confirmation from different sources.
Do your own Research
Crypto tools, apps, statistics, indicators, and instructional materials are always trustworthy. However, you must do your own research for all these to work.
That is because no technical nugget, fundamental insight, or other information will provide a comprehensive answer to your investment concerns but your own market research.
Doing your own research will offer you that advantage if you devote enough time to mastering crypto knowledge.
Set specific targets, diversify, and only trade within your means
It is not advisable to put too much money into a single cryptocurrency. Spread your money across multiple digital currencies as you would do with your equities and shares.
It means you will surely not be over-exposed if one of them loses value. There are literally dozens to choose from, so do your homework.
Prices can fluctuate substantially on a daily basis, and inexperienced traders are sometimes fooled into panic selling when prices are low with no signs of rallying.
Cryptocurrencies are here to stay. Leaving your capital in the cryptocurrency market for months or years at a time may provide the most satisfactory results.
Most cryptocurrency exchanges, including Coinbase and Gemini, allow you to set up recurring purchases. Automating your crypto purchases, like regular stocks and shares, can help you take advantage of pound cost averaging.
Crypto investors instruct the site to buy a set quantity of their favorite cryptocurrency each month, such as £100 worth of bitcoin. That alleviates the burden of attempting to time the market by either purchasing or selling a specific currency at what you believe is the lowest feasible price.
Prepare to ride out the downturn or reap profits
One of the greatest ways to prevent crypto volatility and protect yourself during a market decline is to convert a portion of your risky crypto holdings for more stable assets.
In a cryptocurrency bull market, this can assist an investor ‘lock in’ their balance and lower their risk and need to manage their portfolio and stress levels actively.
Stablecoin, like USDC, strive to maintain their value at a fixed price – and by diversifying your portfolio across stable-value assets, you limit your exposure to price volatility during market downturns.
But bear in mind that selling everything at once, known as capitulation, can easily result in crypto investors losing money if the market unexpectedly recovers.
Therefore, it is critical to plan out what degree of profit and loss you are comfortable with before making decisions under pressure.
Embrace the opportunities
Even when the crypto markets are in decline, there are chances to be found if you know where to search. Where others perceive a dark and bleak crypto winter, astute investors see a new window of opportunity to acquire their preferred assets at a discount and profit.
Buying the dip is undoubtedly one of the most common strategies for traders who feel priced out of earlier gains to enter or enhance their holdings in the market.
Even inside a decline, the market will have tiny peaks and troughs as it moves. Traders who have practiced their technical analysis abilities might gain here by predicting these short-term swings and capitalizing on them by buying the lows and selling the highs.
Short selling or wagering that the value of an asset will decline may also be a profitable strategy during dips.
Activities such as staking and DeFi yield farming can help level out returns and ensure that your original crypto balance continually rises, even during a weak market or downtrend.
Dollar-cost averaging works regardless markets are up or down if you believe an asset will eventually be worth more! During downturns, you receive more bitcoin for your dollar.
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