The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
As crypto crashes, we have witnessed around $2 trillion erased from the combined market capitalization in a matter of months. But what is to come? And how can investors protect themselves?
Tamas Muller, crypto expert at international broker comparison site BrokerChooser shared his thoughts on the recent downward trends of cryptos:
“Global markets have taken a beating so far in 2022 with rising interest rates and economic recession impacting the majority of asset classes on the financial market. The ongoing collapse of cryptocurrencies surpassed a vital milestone with the price of Bitcoin briefly falling below $20,000. The value of bitcoin is now lower than it’s been since 2020, with fears of a further sell off to come as wider crypto sentiment continues to sour.
It has now been over 6 months since bitcoin fell from it’s all-time high of $68,000 and it would seem the recent slump continues to be a ‘correction’ of this heavily inflated price at the height of the crypto bubble, rather than the end of crypto as many have feared.
Bitcoin would need to bottom out at around $11,000 to reflect that of the previous crash seen in 2017 which seems unlikely to happen. With bitcoin now seeing recistence at around $20,000 there are a lot of reasons to suggest we have reached a bottom. At least for now. With the recent sell-off we are over the major liquidations and excessive leverage is out of the market. If no other black swan event hits the market, we can see some gains in the following weeks and months as Bitcoin gets somewhat oversold.
However, with the regulatory issue continuing to be the biggest hurdle for crypto further price swings are more likely to continue.”
BrokerChooser gave us their tips on preparing for a possible further crypto crash:
1. Don’t panic
It can often be the hardest part of investing, but keeping your emotions intact during a bear market is an important step. Always make sure to have a concrete plan in order to avoid making snap decisions in an incredible volatile market. You can only manage what’s in your control and not panic about what’s outside of it.
2. Assess your crypto holdings
Looking at the crypto you have and why you have it is the best way to stick to an investment through good and bad times.
3. Evaluate potential scenarios
Mapping out what you would do if your crypto portfolio fell by 10%, 20% or 50% will help you feel more in control and help you make a more calculated decision. But make sure not to get swept up in short term volatility and keep as focused as possible on the long term perspective.
4. Make sure you have emergency funds
The golden rule of investing in any asset class is to only ever buy shares with money you don’t need. The last thing you want is to be forced to sell an asset at a loss after running out of cash for everyday expenses as this can add years to long-term financial success. Always make sure you have an emergency fund sufficient for your financial circumstances.
Diversification is a remarkable risk reduction strategy. Not putting all your eggs in one basket, the damage caused by a crash in one industry or business is mitigated by other positions. This is particularly important when investing in the highly volatile crypto market. Making sure you are also investing in different industries is the best way to protect your personal assets.
I thought this might be of interest to your readers and, as such, thought I’d send it over. Please do not hesitate to let me know if you need any further insights or commentary from BrokerChooser’s analysts.