Crypto Bear Market : Should I hodl or Sell My Coins?

Investing in crypto often time requires to make some big decisions about your money and investing strategies.

Crypto prices soar and then seem to crash almost as quickly, while rumors, sentiment, and fundamental developments are quickly factored into the market. Like every other investment asset, the cryptocurrency market has its up and down. In just a four-day period in early June, Bitcoin fell from $30,500 to about $19,000 after a decline of nearly 23 %. Over the same time, Ethereum plunged more than 31 percent, and seemingly the whole crypto market has been sinking.

With cryptocurrency so unstable, what should investors be doing to manage their risk?

Here are 4 things to do when crypto crashes

Scared by a market drop or thrilled at the prospect of buying in cheaper? Either way, here are five things that you need to do when cryptocurrency prices crumble.

1. Stay calm

Whether you decide to sell your cryptocurrency or see a dip as an opportunity to buy more, you need to act with a cool head. Making emotional decisions especially when trading, rarely results in anything good happening. So, before you rush into the market in panic, you’ll want to reflect on why you’re trading crypto in the first place.

• Are you investing because you believe in the long-term opportunity?
• Or are you here to make a quick buck on short-term trading?

The answer to these questions can help guide you to the proper decision. In either case, you’ll want to act in accordance with your own goals. In other words, if you believe in the long-term opportunity, think with that mindset. If you’re here for a quick trade, think with that mindset.

2. Assess the situation

Is there news driving the trading price of Bitcoin and other cryptos in other countries? It’s possible that there’s fundamental news that’s shifted the market’s sentiment and it’s not just price action or rumor driving sentiment. In 2021, actual developments hurt prices. China’s move to ban financial institutions from providing crypto-related services was a further clampdown since the country had already banned crypto exchanges in 2017, though it hadn’t prohibited individuals from owning cryptocurrencies. Then late in 2021, the Federal Reserve decided to reduce liquidity in the financial system, and many cryptos have declined into 2022.

In May 2022, the stable coin TerraUSD dropped as traders engaged in an old-fashioned “bank run,” as they feared that it didn’t have the crypto assets to back its peg to the dollar. This news spilled over into other crypto markets, as traders worried that selling would beget more selling.

Thus, these moves have dealt a further blow to the growing market, which had been enjoying significant capital inflows.

3. Remember that volatility is the name of the game

Cryptocurrency is volatile by nature. Because crypto generates no cash flow, traders have to rely on changes in sentiment to drive the price. That means the market can swing from rapid optimism, as it did in early 2021, to pessimistic despair, as it did a few months later. The furor around the Coinbase IPO in 2021 helped drive positive sentiment to crypto, while the reduction in monetary stimulus drove pessimism at the end of 2021 and the beginning of 2022.

So when you have an asset that’s driven by sentiment, the emotions of traders propel the market. That’s true in the case of stocks too, but they might have a real stream of growing cash flows from their parent company to help them grow.

4. Determine how to act

After you’re done cooling down and have assessed the situation and what it means for the future, you’ll want to consider how to act.

• Are the risks really opportunities in disguise? If you see it that way, you may want to continue holding your position or use a dip in the price to invest more.
• Are the risks likely to persist or even grow worse? If so, you may want to take your losses now and stay out of the game for the future.
• Is the situation too murky? If it’s tough to see the way ahead, you may consider splitting the difference, selling some of your position today while still having potential upside tomorrow.

Whichever way you go, you’ll want an action plan that reflects your view on the potential risks and opportunities of cryptocurrencies. But it’s worth noting that some of the world’s smartest investors won’t touch cryptocurrencies and strongly caution you about them, too. Legendary investor Charlie Munger, vice chairman of Berkshire Hathaway, said, “I admire the Chinese, I think they made the correct decision, which was to simply ban them.”

Munger is also on record with the following statement about cryptocurrency: “To me, it’s just dementia. It’s like somebody else is trading turds and you decide you can’t be left out.”

A plunge in the cryptocurrency markets may have you feeling rattled. Use it as a wake-up call to re-assess why you’re involved in the market and what opportunities and risks it presents?