How to deal with losses after a rough year in crypto
By Ravindhar Vadapalli
In a short time, cryptocurrency in India has come a long way. A few years ago, India had essentially no digital currency exchanges. Investments in unregulated digital assets, especially Bitcoin, on the other hand, have shown an astonishing upward trend. Crypto-assets are becoming increasingly popular in India despite a market downturn in 2022, with an estimated 25-30 million investors putting some of their money into this risky but exciting industry.
However, 2022 was a tough year for cryptocurrencies due to a series of setbacks, a geopolitical situation and global headwinds. The value of Bitcoin and Ethereum had fallen by more than 50% from their all-time highs at the end of 2021. Despite recent gains, the cryptocurrency market as a whole is largely in the red. As the value declines, many traders and investors suffer significant financial losses. So, when you suffer a loss, what is the best next step to take?
Survive the winter: collect the resources
After a disastrous year in which the value of digital assets crashed, cryptocurrencies have seen an upswing in 2023. Although prices have started to rise again, the wounds are still fresh and there is much to learn from the recent crypto crash. Any market crash generates a wide range of opportunities and risks. However, the saying “high risk, high reward” is not always accurate. Many of us may also be tempted to buy on dips, but while prices can and often do recover, the process can take months or even years.
The best course of action to survive the crypto winter is to gather the resources and save what is left. The primary advice any expert can give is to stay on your toes and invest carefully. When it comes to trading and investing in cryptocurrencies, having a set of goals for maximum loss and profit is critical to long-term success. Having a maximum loss criterion in place prevents you from losing all your money and allows you to stay in the game.
Patience pays off
Unlike the stock market, crypto markets are highly volatile. Although you may have lost a large portion of your portfolio value due to the market crash, this is not the best time for “revenge trading.” Not only in life, but also when it comes to investing, patience is a virtue. Don’t panic and sell your entire stock either, because you may regret it later if the market turns. Keep most of your cryptocurrency investments in well-known cryptocurrencies if you don’t want to minimize them, and you can also explore more about strategies like keeping long-term thinking. Learn from the mistake of putting all your eggs in one basket and follow the concept of diversification. Also, if you’re still curious, research altcoins or stablecoins to be on the safe side.
Plan B is always useful
The best way to protect yourself from risk is to make sure you have a safe asset or an emergency fund that is adequately cushioned. Three to six months of living expenses are usually held in an emergency savings account, which is usually held in a high-yield, easy-access savings account. A safe asset can be anything that acts as a hedge, including stocks and precious metals. Because nothing will consistently go up or down over a long period of time, it is critical to have a cash flow plan in place before making any new investments. To decide whether or not to invest in a new asset, it is recommended to run the numbers for the worst case scenarios.
Turn the tables
Even when the cryptocurrency market has plunged, there are opportunities if you know where to look. While other investors see a cold and dark crypto winter, wise investors see a new opportunity to buy assets at a discount. There will still be minor peaks and valleys when the market fluctuates, even during a downtrend. These short-term movements can be anticipated and profited from by buying the lows and selling the highs. Investors and traders who have sharpened up can take advantage of this. However, it is important that you average your portfolio carefully. In addition, it is also wise to steer clear of the herd mentality.
All things considered
It is critical when investing in cryptocurrencies to avoid letting past losses unduly influence current and future choices. Concentrate on what you perceive as the intrinsic value of the cryptocurrency and let that influence your choices. It may be worth stopping new investments if you are unsure of the value. In addition, it is wise to keep your investments in things you are familiar with. If you’re still unsure, it might be best to talk to an investment professional who can help explain the cryptocurrency markets to you. While the crypto market crash may have affected you, all you can do is lessen the pain and plan ahead. Note that everything in the markets is temporary, so being smart with your investments can actually prove lucrative.
The author is Professor of Blockchain, Analytics and Finance at the Mittal School of Business, Lovely Professional University
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