How Crypto Investors Handle Falling Prices

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Stock Illustration of Businessman Chasing Bitcoin Falling Down Down Arrow Credit – Malta Mueller—Getty Images

Amid a steep drop in Bitcoin and other top tokens like Ethereum and Solana, some cryptocurrency investors say they are taking a long-term view of the market to weather the storm.

After a difficult week, the price of Bitcoin rallied to hover between $38,000 and $39,000 when last checked on Tuesday morning, according to CoinDesk. This latest gain comes on the heels of a downward slide that saw the world’s largest digital currency dip below $33,000 for the first time since July, with its value more than halving since it was first introduced. hit an all-time high of nearly $69,000 in November. Ethereum, the second-largest digital currency by market capitalization, also experienced a steep decline, hitting a six-month low when it fell to $2,176.41 on January 24.

The crypto market as a whole has lost over $1 trillion since Bitcoin’s all-time high, showing the industry’s tendency for extreme price swings. Yet Wendy O, a popular crypto TikToker better known online as CryptoWendyO, says this level of volatility is just normal for the crypto price.

“Crypto is very volatile,” she told TIME. “We are going to have some nasty slowdowns. And it doesn’t matter. People get confused and think, “Oh, I’m going to have huge wins all the time,” but that’s not how things work. Because we have massive volatile gains, we are also going to have massive volatile declines.

Despite rumors of a potential “crypto winter” – when a sharp drop in prices is followed by an extended period of stable trading – Evan Rodgers, a tech journalist who started investing in crypto after the pandemic hit in 2020, says he tries to maintain a big picture outlook on his bitcoin investments.

“When the price goes down, you can’t think of it in terms of the dollars you’re ‘losing’ without quotes,” he says. “You have to look at the actual number of Bitcoin you have and realize that doesn’t change. There is just a short-term price effect occurring.

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Price dips can also be an opportunity to buy more than one coin that you think will perform well in the future, says Lea Thompson, Founder of Girl Gone Crypto.

“I’m really invested in projects that I think will have much more long-term value than where they are now,” she says. “For me, it’s Bitcoin and Ethereum. If you flip an NFT or try to get a great return on another alternative coin, there is a lot of potential money to be made. But if something really has long-term value, then these market declines are more of an opportunity to accumulate more than anything really scary.

That’s not to say that risk management doesn’t influence how long-term investors handle these potentially stressful situations. After getting burned early in his investing journey by experimenting with leverage trading, i.e. borrowing against a coin to buy more of that coin, Rodgers says he learned to embrace a safer approach to his bitcoin strategy.

“I think any experienced trader will tell you that unless you really know what you’re doing, you’re setting yourself up for a tough time,” he says. “Leverage is great when the market is going up, but if there’s a sudden downturn, you can get liquidated. It’s something I’ve experienced personally and while it wasn’t a devastating loss, things like this help you learn to minimize risk.

O, who started teaching herself how to invest and trade crypto in 2017, says that in addition to adhering to a mindset of follow what you know, she is in favor of developing a plan to match for different scenarios before they happen.

“When the market is green and doing really well, you should have specific take profit scenarios for when you enter, when you exit and all those types of things,” she says. “Conversely, you should have the same when the market is down to determine how much you are willing to lose. If you have these criteria established for yourself, when the market is turning, you can just go ahead and execute based on your assessments.

Crypto’s current slump comes amid a broader sell-off in risky assets like tech stocks as investors brace for the US Federal Reserve to hike interest rates in a bid to combat rising oil. inflation and labor shortages. The Fed announced on Jan. 26 that it was moving forward with tighter monetary policy and that it expected to raise rates “soon.”

Heading into January, anticipation of the Fed’s upcoming announcement combined with reports of soaring inflation, a disappointing December jobs report, and potential new regulation of the White House on crypto were all factors that indicated that another downside could be imminent for the market.

“Even though historically there was a big pump in January, the macro economy just wasn’t good to have such a run this year,” Rodgers said. “It was relatively obvious that we were on the verge of a drop, not necessarily a 50% drop, but when we have this drop it is also common to see a 50% drop. So that’s where my head was.

The slowdown also demonstrated a growing correlation between crypto and stocks, which until this week had been steadily falling since the start of the year – the S&P 500 fell more than 9% while the Nasdaq was down almost 15% – and recently pulled off their worst week since March 2020. It’s a development that calls into question whether digital assets are as good a hedge against losses in other markets as some thought so.

For his part, O says that while this increased correlation can be beneficial for less advanced investors, it’s important for the market as a whole to maintain some level of independence from traditional assets.

“It’s both a good thing and a bad thing,” she says. “Crypto-correlation a bit more with the stock market is good for average investors because they can use this information to make better trading or investment decisions. But at the same time, we want to keep crypto as decentralized as possible. .

With everything going on right now, understanding why you believe in the long-term value of any type of investment is especially crucial, says Thompson.

“People get nervous because they’re looking for some kind of reassurance that everything will be okay,” she says. “The fact is, with any investment, there is never the assurance that it will always be [going to be the case]. But when you understand the underlying principles of why you believe in something, it’s much easier to ride out those waves.

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