Every serious cryptocurrency trader and investor knows about the turmoil that the crypto market has experienced in the last two years. Important incidents such as the Silicon Valley Bank crash of March 10th and the Signature Bank Crash shortly after sent crypto prices down. However, things are looking positive now, with the likes of Bitcoin and Ethereum leaving the S&P 500 in the dust.
Major Incidents Which Had Shook the Crypto Market
There are various incidents that have been driving volatility and uncertainty in the crypto market.
- The threat of regulatory action against Binance, Coinbase and other big players in the crypto market.
- The collapse of Signature Bank and Silicon Valley Bank.
- The closure of Silvergate Bank, which was a key player in the crypto market.
- The fear of interest rate hikes.
All of these incidents took place after digital assets plummeted in 2022. Additionally, the failure of the FTX exchange back in November 2022 created problems for other related businesses, with many of the issues lingering to this day. However, things are looking better as BTC climbs back again.
Understanding Why the Market Is Falling
Before one starts to take steps to navigate a crypto market crash, it’s imperative that one know what causes the fall in prices. Crypto prices can be dramatically affected by news coming out of exchanges or coins. They can also get negatively affected by rising inflation and higher interest rates, which can affect the confidence level of people in risky assets.
Other factors such as regulatory pressures and financial enforcement actions carried out by regulatory bodies such as the SEC can also negatively affect the market. When prices fell in 2022, the pressure was compounded, forcing some investors to free up cash and sell their holdings.
One of the biggest incidents that took place in this regard was the crash of the FTX exchange in 2022. It had a ripple effect, which affected not only FTX but other altcoins such as Solana.
Tips to Navigate a Crypto Crash in 2023
While it’s true that the cryptocurrency market is looking up again, it is susceptible to high volatility and sudden price drops. The price drops can be caused by a variety of incidents and factors such as those mentioned above. Navigating a crypto crash such as this can be challenging but there are several strategies one can use.
Don’t Panic and Stay Informed
The first thing is to remain calm and stop making impulsive decisions. It’s crucial to stay informed and keep up with the latest developments that might affect the crypto market. Joining online forums, communities, and news portals can also provide very valuable information.
Diversify Your Portfolio
Diversification is an essential strategy that can help traders minimise their risk during a crypto crash. The smart thing to do is to spread their investments across multiple cryptocurrencies or even other asset classes. This way, if one investment experiences a downturn, the others may help offset the losses.
Clear Exit Strategy
Every trader should have a clear exit strategy in place before a market downturn can occur. This helps traders avoid making rash decisions in the heat of the moment. They can set up stop-loss orders or take profits at predetermined price points. It’s important to establish clear guidelines rather than letting emotions drive trading decisions.
Buying the Dip
During a crypto crash, price drops are caused by panicking investors selling off their holdings. However, this can present an opportunity to buy quality cryptocurrencies at a discounted price for people who have long-term investment plans. Buying the dip can be a risky strategy, but can work if traders research it carefully.
You might interested: Is Tectonic Crypto a Good Investment?
Holding for the Long-Term
Cryptocurrency markets are known for their volatility. It’s important to consider that price drops form a natural part of the cryptocurrency market. Any trader or investor that finds signs of long-term potential for a project should hold it and wait. Patience is essential for success when investing in cryptocurrencies.
Dollar-cost averaging refers to a strategy where traders invest a fixed amount of funds regularly, without considering market conditions. This approach can help smooth out the highs and lows of the market and reduce the risk for traders and investors. By investing a fixed amount regularly, traders can buy more crypto when the price is low and less crypto when the price is high.
Regardless of the investment strategy one is using, limiting potential losses is a priority. However, with automation software and advanced trading bots readily available, traders can easily set up price-targeted trades. Automating the trading is key to minimise risk, especially considering the 24/7 nature of the market.
When the cryptocurrency market is crashing, some traders might feel scared and make decisions based on emotions rather than rationality. However, by following these strategies, any trader can easily withstand a crypto market crash and come out on top eventually.
Frequently Asked Questions
When Was the First Cryptocurrency Market Crash?
The first time that the entire cryptocurrency market experienced a major sell-off, then it was in January 2018, when Bitcoin fell by about 65% from its peak and dragged down most other cryptocurrencies with it.
Do Crypto Crashes Affect the Wider Economy?
Economists and experts have concluded that crypto crashes do not have much effect on the wider world economy.
Which Were the Biggest Cryptocurrencies to Crash?
The three biggest cryptocurrency crashes involved FTT, SGB and LUNA in 2022. While there is no hope left for LUNA and FTT, SGB may improve in the future.
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