In any other market where there is supply and demand, there will be times when prices will go up and then times when prices will suddenly fall down. What should a newbie investor do then to protect himself from these times of turbulence? We’ve got you covered in this blog post.
Who experienced market crashes (stocks) in their lifetime? Who remembers the feeling of regret when they first saw their portfolio crash like it’s the end of the world? There are several notable stock market crashes that rippled throughout the world, the 1929 Wall Street crash, Black Monday 1987, 1997 Asian Financial Crisis, 2000 Internet Bubble, 2008 Banking Crisis, and the 2020 Coronavirus Stock Market Crash.
Recently, there was a big crash in the cryptocurrency market. This was when China announced that it will be banning crypto trading on its financial institutions. This is on top of already banning cryptocurrency mining in China. China has also incentivized people to report crypto mining companies. The crackdown has been ongoing for quite a few months already. Socialist China wants to see where its citizens are putting their money and crypto has been a big workaround for hiding money from plain sight.
From a sky-high of about $60,000 on Bitcoin, it fell a little bit lower than $30,000 last week. That’s about a 50% decline in just a couple of days! What could you have done in this scenario?
What You Should Do
First, let’s talk about what you shouldn’t have done, SELL. Never sell on a sharp fall. The fear of missing out is tempting but don’t. If you already missed selling in the wee bit of the graph, don’t bother. If you did, then you’ve already lost.
Analyze why the market is panic selling first. Ask yourself, “What happened?” And then hypothesize how much the market should fall based on what you know. In the last sellout, there was a massive scare because China announced that it will ban transactions using cryptocurrency. A few months ago, China also made a crackdown on crypto mining companies scattered around China. How should this affect current crypto prices?
Think about it. There should have been a price scare but it should not have fallen by 50%. It doesn’t make sense because people should have already factored in that China’s crackdown on mining companies inside China would also signal to ban the use of cryptocurrencies there. That’s the most logical order of things. These should have been factored in.
What Should You Do?
Wait.
When stocks get slammed, don’t panic.
– Warren Buffett
Check the momentum of the price action plus the volume of trades. The volume slows down when the people who panic get outnumbered by the number of people who would love to buy from the dip. Usually, it’s the big institutions (whales) who buy in panic. Pretty much as Warren Buffett does, he buys when the market is in panic mode.
Be fearful when others are greedy and greedy only when others are fearful.
– Warren Buffett
Just be patient.
When the selling slows, keep buying the dip. There is no guarantee that slowed-down selling is the bottom of the dip. Every time it slows down, monitor and buy more if you can.
Widespread fear is your friend as an investor because it serves up bargain purchases.
– Warren Buffett
Most stable coins went below 50% or more than the old market price. You could’ve bought more and more coins at these bargain prices even before these hit rock bottom. Had you bought Bitcoin @ 30,000 you would have made 33% from its purchase when it got back up @ $40,000. You don’t get that up fast with other stocks. And the opportunity comes from buying major dips in price.
But I already had Bitcoin before the crash.
That would have been the natural course of things. We’re just explaining that that single purchase would have potentially made you back the paper money you lost during the scare. Or, it will average down the high prices you might have bought Bitcoin during its bull run. If you’re lucky enough, you would have bought Bitcoin way earlier and at a way lower price.
If you still have losses. That’s okay. These are just “paper losses” and you can still earn that money back as long as you don’t buy high and sell low. The price of cryptocurrencies is still volatile and subject to major swings because of uncertainty on how governments react to crypto and which cryptocurrency would emerge as the most useful one to use. So, don’t worry too much about it. In the short term, the trend for cryptocurrencies is going up. That’s a good sign.
And if you studied enough about the use of cryptocurrencies. And, you’re seeing major institutions slowly accept transactions using them, then that’s a major signal that it will be mainstream in the future. We just don’t know exactly when.
A Word of Caution
We’ve already expected China to make a major crackdown on cryptocurrencies because China is already known to monitor its citizens. What we don’t know is how other countries will react. Will they be doing the same thing in the future? Or will other countries support crypto? So far, there is a clamor to monitor but not stop cryptocurrencies to operate. The SEC in the United States is looking into cryptos. The future of cryptocurrencies is still uncertain. If a major free country would be blocking the use of crypto, then that’s bad news for us. But, if there would be scrutiny, it can be both a good and bad thing for us. Good, because scrutiny means cryptos are here to stay. Bad, because it defeats the purpose of decentralized finance. We’re still bullish with cryptos. Let’s wait for good or bad news and decide again next time.
For now, let’s wait and not panic.