If you still do not know what to do when the cryptocurrency market falls, this article is for you.
1. Learn cryptocurrency trends and understand the main indicators
The best way to cope with the volatility of a bear market is to carefully prepare. While others begin to panic and make rash decisions, you will approach the matter in a sound way and will be able to conduct a technical analysis of the market situation.
According to a study conducted by LinkedIn and Ipsos in 2018, millennials when making investment decisions pay great attention to information from social networks, personal experience with companies and advice from relatives and friends. Although all these factors should not be completely ignored, they cannot be considered the best indicators of the behavior of cryptocurrencies. Study news, changes in legislation and regulation, as well as the actions of key players in the cryptocurrency market.
For example, on June 9, reports were published that stated that the US Commodity Futures Trading Commission required several cryptocurrency exchanges to provide data on trades in order to investigate the possibility of manipulating digital currency rates. This caused a serious drop in prices in the next 24 hours, but to itself was not cause for alarm.
Instead of approaching investments from a subjective point of view, study better the methods of technical analysis. For example, such a useful tool as a moving average of a currency, which shows its average rate for a certain period of time. Moving average will help you to make a comprehensive understanding of the trends of the cryptocurrency you are interested in, and you will not be distracted by the random fluctuations of its course.
2. Diversify asset types and investment strategies.
Portfolio diversification is important in any situation, but is especially necessary during a bear market. If we talk about cryptocurrencies, many millennials consider them as an excellent asset for diversification. In fact, 20% perceive cryptocurrencies as a hedging tool in case of the collapse of traditional assets. However, not all millennials take into account all aspects of diversification, but in vain. Here are a few points of diversification strategy, which should not be forgotten:
Diversify your cryptocurrency assets. Although most investors perceive cryptocurrency as a good addition to a portfolio with traditional assets, such as stocks and bonds, many of them forget about the need to diversify these digital assets themselves. Meanwhile, there are various types of cryptocurrency investments, which are very different from each other by the degree of risk and prospects. Here are the main cryptoinvestments that should be included in your portfolio:
Tokens – collect a set of reliable tokens, such as bitcoin and ether, and several altcoins with good growth potential.
Tokenized assets – traditional asset classes, for example, real estate, quickly tokenized, which increases their liquidity and makes them more accessible to retail investors, while maintaining the same potential for stable growth.
Primary placements of tokens – ICO are the most risky crypto-investments. Carefully study everything and invest only in tokens of companies with a reliable reputation and a clear business model explaining exactly how their project will benefit investors.
Divide investments into short-term and long-term. Speaking of asset diversification, remember that your portfolio should include both short-term and long-term investments. Although in a bear market, most cryptoinvestments should be long-term, this does not mean that you will not have the opportunity to benefit in the short run. For example, there is such a risky strategy as scalping, which will take advantage of small changes in the course and make a profit in a bear market.
Choose the investments that seem most appropriate to you in terms of risk, but consider that at least a small percentage of your portfolio consists of short-term high-yield investments.
3. Be prepared for market volatility.
You can perfectly understand the situation and have a well-diversified portfolio, but the cryptocurrency market still remains extremely volatile. In order to survive in a bear market, you need to be prepared for constant price spikes.
Do not go into debt. Unfortunately, 75% of millennials from the USA are in debt. Worse, 25% of these debts exceed 30 thousand dollars. Because of this, it is difficult for them to stick to their investment strategy when the bear market begins to storm. If you expect that short-term profits will allow you to pay off your debts or are not ready to make your investments mature, you will not be able to avoid losses in a volatile market.
Do not do anything. Sometimes during a market crash, the best strategy is to do nothing. Of course, it is difficult to sit back and not drop the assets falling in price or not to try to compensate for the losses at the expense of other, even more risky, investments. However, if you have the patience to keep from panic selling, you can survive this period of volatility.
In the cryptocurrency market, volatility is inevitable. And the fact that the market is now bearish is also a fact. The question is how to react to all this. Becoming a smart and prepared investor, you will be able to survive the bear market with the least losses.