What To Do in a Crypto Downturn
With interest rates rising in the United States and the world starting to emerge from COVID, financial conditions across the globe have tightened. Bitcoin and Ethereum are both down more than 50% from their all-time highs.
The season of “up only,” #cryptotwitter’s favorite term for the bull market, has come to an end.
So, what can you do when things go sideways or down for a bit?
Here are five ideas that may help 👇
1. Forget your peak net worth number
Even though it’s difficult, try to avoid obsessing over the loan you could have paid off, the house you could have bought, or the riches you could have been swimming in.
Chasing after this number will likely lead to poor decision-making.
Instead, try journaling about what happened to your investment and what you might change in the future.
- Did you not take profits as you had planned?
- Did you not leave enough cash on the sidelines for unexpected life events?
- Were you listening to the wrong influencers?
- Did you focus on a project’s hype instead of its fundamentals?
- Did you not have a plan in the first place?
Identifying these decisions can help you make better ones in the future. The first step is acknowledging the problem.
2. Avoid revenge trading and FOMO
If you’re down substantially from your portfolio highs, you’re likely not going to make it back on one trade.
Yet, this doesn’t prevent people from revenge trading, trying to recover a loss from previous trades in a super short period––and often acting irrationally in the process.
The key to avoiding this is position sizing, adjusting your trade size to fit your account balance. You’ll always risk a set percentage of your account on each trade, no matter how large or small your account is.
For example, if you can risk 2% of your portfolio per trade, and have a $10,000 account, you’ll take a $200 position on each trade. If your account doubles or shrinks, so does your trade size.
Position sizing is critical because it helps you stay in the game, even if you run into a string of losing trades..
3. Consider dynamic dollar cost averaging
Macro investor Darius Dale tells his audience to not only dollar cost average — investing a set amount weekly or monthly — but to dynamically dollar cost average.
What does this mean?
When the financial outlook is negative, you scale back your buying in favor of holding more cash. When the financial outlook improves, you increase the size of your purchase.
To make the strategy even better, you can direct part of your monthly investment into a dollar-pegged stablecoin like USDC, USDT, or USDP and move them into a Blockchain.com Rewards Account to earn a competitive APY.
4. Take risk off the table if you can’t sleep at night
Yup, that’s the whole tip. ☝️
The predictable thing about crypto is that it’s unpredictable. If that causes you to lose sleep, you may have too much at risk.
5. Keep an open mind
We’re still in the early innings of this technology.
When the internet went mainstream, it was hard to imagine that companies like Facebook, Google, and Amazon would emerge.
The same goes for Ethereum and Bitcoin today. We don’t know what amazing use cases will emerge or which projects will thrive.
We know it hasn’t been easy out there. But the good news is that crypto has been through difficult times before.
And that’s often when the best building happens. 🏗 ️
Did we miss any tips? Let us know in the comments section.