Market volatility can be difficult to control, especially for new investors who are new to trading. Here’s how you can manage it. (Source: Getty)
Put simply, crypto market volatility is a term used to describe fluctuations in the crypto market, which may be related to factors such as crypto prices, trading volume, or the number of investors participating in the market.
Just like you would settle down during a storm, crypto volatility can cause investors to duck for cover to protect themselves from possible losses that lie ahead.
However, not all volatility is to be feared. In fact, there are already several winners in the crypto market who know how to invest with a level head and benefit from market movements.
For those new to investing who don’t know how to endure crypto volatility efficiently, this is not all doom and gloom; Here are five tips to help you make the best crypto decisions possible.
1. Understand your timeline
It’s no secret that the crypto market is always volatile, especially when price fluctuations mean that crypto assets can rise and fall by up to 50 percent in just hours or even days.
To protect your investments, understand your schedule and know when the best times are to buy and sell crypto assets.
For example, if you need short term access to liquid capital from your portfolio, this may not be the best investment idea. Remember, it took Bitcoin (which hit prices above $ 70,000) three years to hit the highs of $ 20,000 it saw in 2018.
The key elements to protecting yourself from crypto market volatility are the same as normal market volatility (Source: Getty)
2. Don’t give in to the FOMO or panic invest
With most of the headlines filled with tantalizing news of crypto all-time highs, falling prey to FOMO (fear of missing out) can be pretty easy, especially when unqualified “finfluencers” are driving up certain assets.
Instead of getting carried away by positive price action, don’t be too quick to overlook the fundamentals. It is best to take a step back and see the bigger picture of the crypto asset that you want to invest in. Do your research to get a clearer understanding of the asset’s longevity and whether it is ready to overcome crypto volatility.
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The same rules apply to panic investing. People tend to have emotional connections with their money and often subconsciously apply those emotions to their investment portfolio. Even the most seasoned investors can fall into the emotional investment trap, especially during times of volatility that can create excitement when markets rise but can quickly turn into fear when a stock market crashes.
To mitigate problems caused by panic investing habits, it is a good idea to only invest when you have a cool head.
3. Look at the dollar cost average
Rather than investing lump sums in a crypto asset, it is often better to average your investments using a dollar-cost averaging strategy. The dollar cost averaging theory claims to work whether the markets are rising or falling because the goal is to even out the highs and lows of the market.
For many investors, averaging the dollar cost can be a great way to avoid the impossible task of “timing” the market and coming up with a lower risk investment strategy for a high risk asset that offers the opportunity to hedge against market fluctuations.
4th Set yourself clear goals and diversify
It is important that investors set goals and determine their strategy (e.g. their entry and exit points) prior to investing in order to ward off damage from crypto markets around the clock.
Sometimes you might think a crypto asset is on its way to the moon, but as soon as you fall asleep, it crashes instantly.
You should also try to diversify your portfolio with a number of different crypto assets, including stablecoins like USDT, as well as stocks and commodities, to protect yourself from potential losses.
5. Adopt a long-term investment strategy
As with investing in stocks, it is smart to have a long-term investment strategy when investing in crypto. For crypto assets like Bitcoin, market movements can cause the assets to fluctuate over different time periods.
Instead of selling a crypto asset quickly once it falls, it may be best to hold onto each crypto asset for as long as possible to take advantage of the benefits once it starts booming again.
In some countries, holding crypto assets for a longer period of time can also be beneficial for tax reasons.
Overall, the best way to bottom out is to keep up with the news, especially what experts are saying about the industry. Digest as much information as you can, create a plan of attack, and try to stay calm and in control of your investments, especially in a bear market.
By Josh Gilbert, market analyst at the global multi-asset investment platform eToro.
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