February 15, 2022
by Oliver Sachgau
When the valuation plummets, panic in the crypto market rises. Guest author Oliver Sachgau, financial expert at Vivid, explains how to keep your spirits up.
The blood runs through the streets – that’s what they call it in crypto when fear reigns supreme. At the beginning of the year it was time. The crypto market lost approximately $1 trillion in value between November 21 and January 22. How unbelievably much money is that? With the sum of the losses, you could have bought the entire Tesla company. The panic at moments like this makes investors lose heart and mindlessly squander their investments in Ethereum, Bitcoin and Co.
In fact, such corrections are not uncommon in the crypto world and so far the major currencies have recovered. To make sure you keep your spirits up in the next crash as the chaos unfolds, here are three survival tips for you.
Meme traders call it “HODL”
When it gets serious, it’s ‘Keep calm and carry on’. While the others are running in circles screaming, don’t look at your crypto wallet or depot at all. Provided, of course, that you see your coin investment as a long-term investment. If you really want to stick with it for the long haul, you have nothing to worry about (for now). Book losses only become real losses when you sell your coins. But if you stay calm and wait for better times, it is very well possible that the price will rise again and red numbers will turn green again.
The meme traders on the net call this “HODL” – meaning you hold onto the investment no matter what. But honestly, cryptos are and will always be a risky investment, even if the crypto guys and girls on the internet like to say the opposite. If you get tinnitus and stomach ulcers during a recession like this, you should ask yourself: Does it make sense to move to less risky investments? Your mental health could thank you.
Know your risk: gamble or play it safe
Okay, so you want to stay with us for the long haul, but kicking back isn’t your thing? In this case, possibility is one cost averaging. This is, so to speak, the Opel Astra of investment strategies: reliable, durable and likely to reach your goal.
You simply invest a small amount at certain intervals. So one day you can catch a coin that sells when prices are falling, the next day you invest when the price is high. On average, you will hopefully get a decent, but only average return.
Well, option two, to stay with the image, is a souped-up open-topped Ford Mustang with a loose accelerator: you could get to your destination very quickly, or you could crash into a concrete pillar at 170 mph. It’s called “catching a falling knife.” As the name suggests, this strategy is very risky.
Here’s how it works: in a crash, the price never drops sharply all at once. There are always small upward swings. If you want to gamble, you can try to catch these peaks, buy right before them and sell at the peak of the peak.
This requires timing and a fair amount of luck. Losses are very likely. Hence the name: you will probably injure yourself when catching a falling knife. If you want to keep your fingers, it’s better to leave them with this strategy.
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