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Because of COVID-19’s impact on the economy and recent political tensions between Russia and Ukraine, the cryptocurrency market has been more volatile than it has been over the past few years.
However, while fluctuation is normal, it can lead to people making bad decisions. Panic selling is one such bad move.
When a significant number of people acquire cryptocurrency, the price rises (the buy pressure exceeds the sell pressure). When a large number of traders sell at once, the opposite applies (the sell pressure exceeds the buy pressure). Investors’ fears are heightened when markets unexpectedly plunge. It’s risky to make judgments based solely on that concern because the bear market may not be reflective of long-term tendencies. Maintaining a more long-term focus is critical.
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A popular tweet by Twitter user @GregSchoen in 2011 (Source: Twitter.com)
A major driver of bear markets is panic selling, which may cause a cryptocurrency to fall exactly as quickly as it rises when more people buy it. The “Fear and Greed” index best illustrates the price movement in cryptocurrency. Investors buy and sell based on their desire for bigger returns and their fear of losing funds if the price falls.
How Can You Avoid Panic Selling?
You may avoid panic selling and deal with panic selling of bitcoin and other cryptocurrencies by following these tips:
Start Investing Capital You don’t need
Due to a strong emotional attachment to their money, many panic-sell. Investors who put in $1,000 but cannot afford to lose it may sell in a hurry if the price drops even a little bit. It’s possible they’re struggling to pay their rent, buy food, or pay off their college loans. Traders are more likely to panic sell when the price decreases if they need the money.
On the other side, some folks can invest hundreds of thousands of dollars without even checking the pricing because they don’t need that money right away.
Treat cryptocurrency investments the same way you would if you were trading paper money. Investments should be made with funds you can lose and that you don’t immediately require. In the absence of full certainty, there is no need to invest with money you cannot afford to lose in a cryptocurrency.
Leverage up to one hundred times your initial investment in crypto contracts
Even if you’re investing in different cryptocurrencies, this premise holds true. It’s possible to lose money even if you retain Bitcoin long-term because it is the largest and safest crypto asset.
As a result, you’re more likely to make rational decisions and keep your investments for months or years rather than just a few days. A long-term crypto investor is more likely to exit at a greater price than the one at which they invested. Invest with money you don’t need if you don’t want the emotional agony of red candles to weigh you down.
Keeping a Long-Term Perspective
In just ten years, Bitcoin went from being worth less than a single cent to a record-breaking $69,000. Most of the billionaires and millionaires in the market today were among the original investors. Almost $60 billion is now in Satoshi’s wallet. He has yet to sell a single Bitcoin.
Early investors would have been flabbergasted by prices like $10,000 and $60,000 when Bitcoin was being mined on laptop computers, and customers could buy full Bitcoins for less than $1.
Even in recent months, the value of Bitcoin (BTC) and other cryptocurrencies like Ethereum (ETH) has fallen dramatically. Bitcoin fell to $3,700 and Ethereum to $87 during the March 2020 Covid slump. In less than 100 weeks, Bitcoin went from a low of $5,000 to a new all-time high of more than $15,000.
Bitcoin’s short-term volatility may be blown out of proportion by the media, but a savvy trader has been keeping a long-term perspective since the beginning.
Below is a list of average yearly Bitcoin prices since it’s early inception:
- 2010: $0.10
- 2011: $1
- 2012: $10
- 2013: $100
- 2014: $1,000
- 2015: $500
- 2016: $900
- 2017: $15,000
- 2018: $8,000
- 2019: $10,000
- 2020: $9,000
- 2021: $40,000
On a three-year timeline, Bitcoin has been steadily increasing since its inception till the present. However, only those who properly timed the markets or held for five years or more have made a large profit.
As of today, Bitcoin can swing thousands of dollars in a single day candle, more than the price of a single Bitcoin was during the bull run in 2014. If the price of a Bitcoin hits a million dollars, the price of a single Bitcoin might swing $50,000 in a single day.
Employ the DCA strategy (Dollar Cost Averaging)
Long-term crypto investors can benefit from dollar-cost averaging to level out their entrance price as a buying strategy.
If you buy $10,000 worth of Bitcoin and then make a 6x profit, you’ll want to buy even more. In contrast, you don’t want to buy Bitcoin at $60,000 because you’ll get less Bitcoin for your money than you did previously.
Every month, you will buy and sell at the same time so that your entry price is not affected by market movements. This approach is based on the assumption that the price of Bitcoin or another cryptocurrency would rise in the long term.
Suppose you get paid on the 15th and wish to save Rs 2000; you might get 0.03 BTC one month and 0.005 BTC the next month for the same sum. A good rule of thumb is that your average investment will fall somewhere in between the two extremes if you use this technique.
When you DCA, you’ll become less emotionally attached to the market and hence less likely to panic-sell. DCAing is the best approach to build a long-term cryptocurrency portfolio, especially if you invest in established cryptos like Bitcoin.
In the case of missed bottoms, traders beat themselves up because of the potential profits they could have made. The same is true when they lose out on a local top and its price increases even more. The only method to combat this is to set up a fixed purchase schedule, where you buy a defined quantity of cryptocurrency on a regular basis and add it to your portfolio.
Refocus on the Basics
Your crypto’s primary value proposition should keep you from making a hasty sale. As early as the early days when it started gathering pace, nearly no one invested and retained for the long term in Bitcoin.
Only a small number of users who purchased Bitcoin inadvertently and then misplaced their wallets were able to profit from those long-term increases in value. A USB stick worth hundreds of millions of dollars in Bitcoin was found after an eight-year hunt in a landfill.
As long as you remember your crypto’s primary value proposition and what it can achieve for its customers, it will continue to attract buyers for years to come.
Remove yourself from the price activity and focus on what really matters—your crypto value proposition—instead of getting dragged into the downward spiral.
Billionaires and governments are currently engaged in an arms race to amass massive amounts of Bitcoin, which has the first-mover advantage. Smart contracts, ERC-20 tokens, NFTs, and other breakthrough technology were brought to the table by cryptocurrencies like Ethereum.
There is little to worry about in the long run if you choose a cryptocurrency with robust fundamentals. Cut your losses instead if you pursued green candles and chose a token that you know won’t last after the bull run is done.
Accept the Risk of Price Fluctuations
In the crypto market, price volatility and 50% declines are typical. If you want to hold Bitcoin, the best-performing asset in history, you should be prepared for losses and pullbacks.
BTC trading pairs, which have a big market value, can have an impact on other cryptocurrencies.
A drop in price is possible, but it is expected to rebound. More than a dozen times in Bitcoin’s existence, the currency has fallen by 85 percent or more. Every time it has come back.
In the 2021 bull run, even those who bought the $20,000 peak three years earlier while incurring 50% losses were bailed out.
When a trader doesn’t make a profit, they’re technically losing money. Tether (USDT) is a stablecoin, and the trader is out of the game if they sell their crypto for it. In other words, they can’t take part in the recovery, and it’s not until then that their losses become official and taxable.
Invest in a Better Cryptocurrency
The number one investment rule of Warren Buffet is: “Never lose money.” His second rule is “Never forget the first rule.” Cryptocurrency success hinges on a strong foundation of capital preservation.
Cryptocurrencies can go to zero in some situations; thus, panic selling is warranted. More than 50% of the cryptocurrencies that are created often crumble to the point that they can no longer be saved.
The only way to be certain that a cryptocurrency will rebound after a drop is to select high-quality projects with a significant market cap. The safest bet is top-ranking cryptocurrencies like Bitcoin, Ethereum, and Cardano.
Cryptocurrencies with multibillion-dollar market caps and devoted founders, marketing, and development teams stand out from others that were created as a joke. They are more likely to last long, whereas the latter may crash after an initial rise.
Selling out of desperation can lose you tens of millions of dollars in potential profits. Numerous traders who had billions of dollars worth of Bitcoin at current prices liquidated their holdings for as little as a few hundred dollars.
As long as your crypto’s fundamentals are solid, you can practice emotional detachment to some degree. As a substitute for obsessively checking the market, try doing things like yoga or meditation or going to the gym.
Taking a break from crypto may help you reevaluate your investment strategy and your core values. This could lead to other investments or keep you on track until you’re ready to sell for a profit.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.