Bitcoin’s dramatic fall and what it means for the future
The world’s number one cryptocurrency — Bitcoin — has plunged to its lowest levels in almost a year, leaving investors in a tailspin amidst of flurry of sell-offs. 10 May 2022 might be regarded as a watershed moment for Bitcoin as its value sunk to under $30,000 for the first time since June 2021.
This crypto bloodbath saw sell-offs with $1 billion worth of digital assets wiped off in just 24 hours — staggering! Industry sentiment is that due to rising inflation, a large number of investors are taking a risk-off approach by selling both crypto and stocks.
Why has Bitcoin’s value plunged?
With the institutional adoption of crypto around the globe, the crypto market has become more intertwined with the stock market — something bound to have a ripple effect somewhere along the line. That’s precisely what happened when stocks fell sharply earlier this week, causing Bitcoin to follow suit.
Bitcoin and stocks have had to bear the brunt of rising inflation, global economic issues with the conflict in Ukraine, and tighter monetary policies across the globe. Such conditions brewed the perfect storm and created extra volatility in an already uncertain market.
While Bitcoin has somewhat rallied to around $30,500 at the time of writing, industry experts anticipate that this downward spiral is far from over. There is light at the end of the tunnel, however, as some analysts anticipate Bitcoin’s recovery to boost its value above $150,000 in the coming months — something that seems like a distant dream for investors at the moment.
For both seasoned and fresh investors, this is certainly a nerve-wracking time — circumstances where they may be tempted to join the crowd, cut their losses, and sell off before their entire investment goes up in smoke. Such decisions in the world of crypto are regarded as panic investment decisions and rarely bode well for those who have cut their losses in the past.
With that being said, panic selling is the last thing you want to do — if the history of the crypto market is anything to go by.
What is panic selling?
Panic selling happens when a specific event — like Bitcoin’s recent plunge — forces investors to sell off their investments, in part or full. Typically, this happens when short-term investors try to pull the price of a cryptocurrency down in an attempt to trigger long-term stop losses.
Such panic investment decisions can be irrational and tend to snowball with a herd-like mentality as investors follow each other’s habits. Fluctuations in the market are a scary proposition and can cause investors to make crazy decisions — especially the new investors. They may justify their sell-offs as playing it safe in a volatile market — not realising the ramifications of their actions.
With that being said, all crypto investors should understand that the crypto market is fundamentally volatile and that, historically, any drop in the value of a cryptocurrency is usually followed by an even stronger recovery. Looking at past market performance, it is clearly evident that panic selling is a bad idea — let’s explore some ways to avoid it.
Ways to avoid panic selling
Remind yourself that the market will recover
While your investment may be looking all doom and gloom at the moment, it is important to remind yourself that the market always recovers — if history is anything to go by. At some point in the future, the crypto market will bounce back, and your Bitcoin’s value will get back to much healthier levels.
The value of your current Bitcoin investment is just a figure on your screen right now — so if you sell now, that figure will remain the same, and you won’t benefit from future gains since you locked in your losses. Buying high and selling low is no way to invest smartly, so ride out the storm as brighter days will surely follow.
Keep your emotions in check
It is vital that you keep your emotions in check — especially when you feel your investment is a losing cause. Acting emotionally will lead to impulsiveness and cause you to make irrational investment decisions that you may later regret.
By keeping your mind calm and clear, you will think rationally and not sell off in haste at the first sign of volatility. Remember, the markets are always going to behave like this — for the foreseeable future — so keeping your emotions in check will help you look at the bigger picture.
Think of the long-term
Before making panic investment decisions, think back to when you first invested in Bitcoin. Surely, you did your research and had some idea that the markets would not always be rosy. Think about the projections that were anticipated when your first made your BTC investment — how does it compare with what you currently have.
By looking at your long-term objectives, you will soon realise that things are not as bad as they seem. Considering that some analysts believe Bitcoin will breach $100,000 this year — there’s a lot to look forward to with your investment. With that being said, panic selling is the last thing you want to do.
Know how to manage risk
Your cryptocurrency investments should vary with a diversified portfolio as this helps to manage your risks. This not only means investing in altcoins, but also equities, cash, and real estate — things that will help you manage situations like a Bitcoin crash.
Buying a high-risk asset like Bitcoin, hoping to reap untold riches doesn’t mean that you shouldn’t anticipate occasional slumps in value. However, by diversifying your investment portfolio, you will be better positioned to exercise resilience with those investments — like Bitcoin — that are not performing as you like.
There are absolutely no guarantees when it comes to investing in Bitcoin — like other cryptocurrencies. Hope does lie in the crypto market’s historical performance, and that should bring solace while reaffirming your belief and perseverance that the markets will improve.
Considering that Bitcoin is the number one cryptocurrency on the market, there’s every chance that your investment will start bearing fruit as 2022 rolls along, so keep the faith during these turbulent times and who knows — you may be pleasantly surprised that you chose not to panic sell after all!