Cryptocurrency is the decentralized solution to global finance… or is it? It’s certainly popular, turns regular folks into millionaires in their respective currencies, and poses a new addition to the global financial system, but it’s no longer decentralized.
Not in the way we think. Small shifts in the market can reach losses of hundreds of billions of dollars, and during an event in January 2022, it can cost up to a trillion dollars.
This wasn’t a crash, mind you—just a decline event. What does it mean for the future, and how do you prepare for it? Let’s talk about that and get you set up for the future of crypto.
How Important Crypto to the Global Markets
Crypto has become a popular investment vehicle for new investors, but it also poses a promising future if it can hold on long enough.
Cryptocurrency is ingrained in the global financial market right now, and it likely always will be. In January of 2022, it hit an all-time high of $1 trillion, which has never been hit before.
This makes cryptocurrency the fifth-most traded currency in the world in terms of value. That’s pretty substantial, and it wouldn’t make it to this point if it was just a fair weather idea.
However, it lacks stability, and includes tons of risk associated with users. There’s no bank that can back up or insure your cryptocurrency like they can with FDIC-insured money.
The risk is greater, but the drive to send cryptocurrency to new heights is also pretty intense as well. Everyone wants cryptocurrency to succeed, and everyone wants to make money with it.
It’s just a matter of holding and finding the right coins to stick with.
What Should I Do if Crypto Crashes?
Well, let’s look at a simple four-step way to approach crypto crashes so you don’t end up with regret when the prices rise in the future.
Step 1: Don’t Panic
Panicking is always a bad idea. It’s a natural response when things shift or when you stand to lose a lot of money, but panicking is only going to lead to regretful decisions.
Instead, use this point in the market to make a sound decision. You’ve heard the term “buy the dip” in the past, which refers to buying when prices plummet in the hopes that they’ll rise again.
Keep in mind that if you buy the dip, you have to only use money that you’re 100% okay with losing, because there are no guarantees. If the dip ended up being a precursor to that particular crypto falling even further, you would be in for quite a nasty surprise if you needed that money.
Step 2: Keep Your Eyes on the Prize
Understand that investing is about the long-term. In many instances, investing is about having money for retirement so you don’t have to worry about bills (and having fun) when you hit your golden age.
Don’t forget that. Now, how can you invest if you have to be ready to lose it all like we mentioned before? It’s a slippery slope, but being okay with losing is part of the long-term game in investing.
Ensuring that you’re not in financial ruin if the investment tank is key, because otherwise you’re poised to panic sell and potentially ruin your future.
Step 3: Understand Volatility
Volatility doesn’t just mean “This might go down sometimes”, at least not when you’re talking about stocks. There are volatility ratings with different stocks to let you know how dangerous and high-risk they are, but with crypto… it’s all high-risk.
Don’t just understand that volatility is loss, actually understand what makes the market move and what makes volatility happen.
This will help you better predict how crypto will shift (although honestly, nobody can predict the market, but clear indications such as nationwide regulation in a specific country will drive the price higher, so you can use instances like that).
Step 4: Designate Your Plan
Your plan should be that 100% of your investments in crypto are okay to lose. It sucks, nobody wants to lose money, but it’s going to happen.
If you panic when you lose money, you’re just going to make bad money moves in that panicked state. Being a good investor means preparing for come-what-may, and if crypto flops, you have to be ready for that.
Your investments should never completely alter your way of life. If you want to live off of investments, it’s worth it to invest in an index fund and prepare your retirement with an SDIRA.
You can also look to buy Bitcoin in your SDIRA as one of your many assets that you can hold. Be sure that your way of life will stay on track in the event that crypto crashes.
Cryptocurrency isn’t going to crash anytime soon, but it’s not completely immune. After all, we’ve seen the housing market crash not too long ago, and many of us are still feeling the effects of that right now in 2022.
The crypto market will mimic how the US stock market goes. Nearly everyone who invests in cryptocurrency isn’t doing this because a decentralized currency allows freedom, but rather so they can buy low and sell high, just like a traditional stock.
Because of the way that many investors treat it, the asset is volatile, but it has far too much involvement now to just disappear overnight and lose the interest of hungry investors who want the next big thing.
Crypto Destabilization FAQ's
It’s highly unlikely, but not impossible. Cryptocurrency has gone through the roughest part of the market to become a globally recognized form of currency, but what does that mean for its future?
It tends to mimic the stock market and is affected by other global markets. While cryptocurrency is hailed as a decentralized currency, it’s used more akin to stocks and ways for individuals to grow their wealth.
All cryptocurrency mimics the US market in some way, and that can absolutely lead to future crashes.
Never put money into an investment that you couldn’t live without. If losing 100% of an investment in cryptocurrency turns your life on its head, then you prioritize things improperly.
If crypto crashes, there’s literally no harm in holding it. It would be unwise to sell, even if prices don’t rise again for a while. Always play the long game with investments into cryptocurrency and stocks, and poise yourself to live and survive just fine if these investments go under.
No. No cryptocurrency is safe from a crash. Experts say that right now, with the way the market is, 90% of coins would not survive a crash and would, in fact, completely bottom out.
That can be startling for many to hear, but even then, the 10% of coins (BTC, ETH, etc.) still aren’t safe, they’re just the safest. As the saying goes, the bigger they are, the harder they fall.
But is it likely that crypto will completely die out because of a single crash? No. Many coins would likely bounce back, because cryptocurrency has been around long enough that we know it’s not a failed idea.
While skepticism may make it take a while for prices to rise again, they will rise in the event of a crash. It just means that now you’re playing the long game.
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