Businesses are speculating the onset of potential crypto winter, where crypto prices are predicted to fall and stay that way for a long period of time. Between November 2021 and June 2022, the overall market capitalization of cryptocurrencies has dropped from $3 trillion to below $1 trillion. In addition to the crypto fall, stocks’ officially entering a bear market has led to experts speculating that a recession is on its way.
The volatility of the crypto market has always made it an attractive yet nerve-wracking playing field for potential investors looking to make a profit. But what can you do to manage the risks that arise from the volatility of this market? Keep reading to find out.
1. Keep a Cool Head
When crypto prices fall, it is easy to get excited or panicked and make decisions in haste. In such cases, making decisions solely based on your emotions can be unwise. It is crucial to remain calm and composed and to take a step back from the situation to assess your various options.
In the event of an economic recession, try to determine your reasons for venturing into crypto. Are you in it to make quick money in short-term trading, or are you in it for the long haul?
Financial experts advise against new players entering the market during a crypto winter as you may not see rewards for a considerable amount of time. But if you’re willing to be patient and wait out this period of low prices, you could reap your benefits sometime in the future.
2. Rebalance Your Portfolio
Most investors have a diverse portfolio of stocks, bonds, and crypto-assets. During a recession, when your asset value changes, you need to reallocate your assets to ensure optimal returns. Rebalancing your portfolio means investing more in assets that are more likely to perform well in the market and holding back on reinvesting in assets that aren’t doing well.
Most financial experts advise that cryptocurrency should remain a small part of your portfolio, from 1% to 5%. Its volatility makes cryptos a tricky investment, so if you’re investing in them, don’t invest more than what you’re willing to lose.
3. Evaluate Future Regulations
Cryptocurrency has always faced the threat of laws and regulations that could undo its growth. Different governments have varied views on it, from making it legal tender to banning crypto trading altogether. The financial and environmental impact of crypto mining also poses a significant challenge to the future of crypto investments.
Before you decide what to do with your crypto investments during an economic crisis, do extensive research on potential regulations in the pipeline. Determine whether these regulations would benefit you or cause you to lose out on your returns. If you stand to lose more than you gain, figure out how long it might take for such a scenario to occur, and then make a decision.
Trends in the future crypto market play just as important a role as current trends. Don’t rush to a hasty decision without considering both these scenarios simultaneously.
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