What if the market where you have invested crashed overnight? Will you sleep after knowing trillions of dollars have been wiped out? You will feel cheated and defeated at the same time, but this is the beauty of the crypto market. It is volatile and can make you king or a pauper anytime.
Crypto crashes can be influenced by social events or maybe intentional acts. The crash of big crypto coins can affect other coins as well. Top coins like bitcoin, Ethereum, Binance, etc., can shake up the balance of other cryptos.
The uncertainty of cryptocurrencies creates an analysis mindset for traders. They draw strategic plans to overcome the frequent crashes. One can apply these plans in crypto crashes, but before that, let's look at the crypto crash thoroughly, and why does this happen?
What Is A Crypto Crash?
Bitcoin and the crypto market are volatile by nature. Thus, the fluctuation of prices of coins is quite natural in the market. However, an asset is said to crash when the asset's price falls by about 10% in a day. Sudden changes and events affect the crypto marker, thus triggering crashes, dips, and corrections.
The most significant crypto crash occurred on April 10, 2013, when US FinCEN (Financial Crimes Enforcement Network) declared that crypto exchanges must get themselves registered as money transmitters. The price of Bitcoin fell from $259.34 to $70, thus showing a 73.1% price decrease within 24 hours.
Crypto crashes, dips, losses, huge gains, and corrections are no new things for regular investors. However, this might be quite confusing or scary for new investors.
A mindful and careful understanding of the market followed by wise strategies, decisions, and actions can help you make profits even in a crypto crash. However, it's important to get around the reasons behind crypto crashes before understanding such strategies.
Why Does Crypto Crash?
The price of crypto and the crypto market is dependent on macroeconomic factors and some other factors such as interest rates, inflation, etc. Here are the top 6 reasons behind crypto crashes.
CryptoQuant, a famous crypto data firm, published its BTC leverage ratio, which was on all-time highs during the beginning of the year, thus signaling the addition of new investors into the market. In traditional markets, it's common for investors to use debt to get started with buying futures.
Crypto investors can get started with the same practice, thus limiting miners from future coin drop prices. This can further lead to short-term volatility. With subsequent price drops, it's quite normal for futures holders to liquidate their assets, thereby leading to a dip in prices further.
Moreover, the cryptocurrency regulations vary from nation to nation. About three dozen countries like China, Iraq, Bangladesh, Algeria, and Egypt have financial institutions far away from crypto mining and the crypto market. Another reason which contributes to the crypto crash is that the crypto crash doesn't stand up well when the stock market falls. This makes digital currencies incapable of safeguarding their identity.
Other factors promoting crypto crashes are security breaches in the blockchain network. Suppose a security flaw is detected in Bitcoin. This news will affect Bitcoin miners and their prices, thus letting only some Bitcoins exist. Cryptocurrencies, unlike stocks, don't have any underlying supporting assets and are driven by the sentiments of the investors.
In addition to these, crypto influencers cause sudden capital inflow with a single tweet, thus increasing the market's volatility. The increasing popularity of meme coins and the minimal utility of crypto coins also become questionable at times, leading to crypto crashes. However, the crypto crash also offers investors the right chance to grow and make a profit with the right strategies.
Crypto Crash After Russia Ukraine War; What Will Follow Next?
With the heaping up of tensions caused by the Russian invasion of Ukraine, the global crypto market fell by about 10%. Within 24 hours, Bitcoin fell by 8.5%, Ethereum by 12.7%, Solana by 12%, Avalanche by 18.2%, Binance Coin by 11.4%, Cardano by 18%, Shiba Inu by 18.9%, Terra by 9.5% Dogecoin by 16.7% and Polkadot by 16.2%.
The New Year predictions had forecasted the arrival of the next crypto winter, fears of which were worsened by this event. With Russia's beginning of "special military operation," the major cryptocurrencies, i.e., Bitcoin and Ethereum, hit their monthly lowest prices.
More than $200 billion had been wiped from the crypto market. Not just crypto, the Russia Ukraine war affected all digital assets, leading to devaluation. Investors started offloading their gatherings following these price dips to protect their portfolios.
However, recently, crypto has been changing the war's game plot, thus being used by both parties. With banks going nonfunctional, transporting and storing physical cash becomes highly risky. Thus, countries are switching to crypto assets.
Recently, a report published by Coinshares says that the trading volume increased by 107% in Ukraine and by 231% in Russia. Although the major tech companies have backed out from Russia, thus stating their neutrality towards the escalating tension, crypto still stays in the battleground.
Some strategies To Make Profits During A Crypto Crash
A market crash is an event that can change the performance of cryptocurrencies' trends. The crash in the crypto market indicates an apparent dip in the price values. The situation of a market crash is an unpredictable event. Although experts believe that it is an influence of social and internet search trends, in reality, it has a weak correlation.
The news of losses flood once a crash occurs, but some smart people manage to arrange their share of profit by following clever strategies even in a crash. So, here are the top seven strategies that will help you gain huge profits even during a crash.
In a Crypto crash use Dip Purchase
Making a "buy" move in a crash is not a cakewalk. But it can be effective enough to squeeze out the profit. A successful dip-buying needs a good investor with a detailed study of market trends and time.
The crypto market is always a risky plate; if the global trend gets reversed at any cost, then all your buys during the dip will lead you to losses. It only favors you in the general bull market.
Hold Tight during a Crypto crash
No one predicts how long a crash will last. To keep inactive during a crisis is the best thing a person can do. Similarly, you can hold your currencies during the crash. If you are not selling your coins below the buying price, then there is no point in having a loss.
Doing nothing can be an effective strategy to overcome a crash. Experts believe if a wallet has stable and top-rated currencies, then the chance of beating a crash is more.
Coin Sorting: a way to overcome crypto crash
It sounds as easy as borrowing the assets and selling them, then again buying them at a low price to return the assets to the person you have borrowed from. The rise and fall of price can easily decide the profit and loss, respectively.
Coins sorting can be a very risky move. If it works accordingly, it can undoubtedly have a huge chunk at the end. But it can wipe out all you have if you lose. Experienced traders use it as it requires great skill. You can have the tool to perform it on many exchange platforms.
Menage crypto crash by Fiat Currency Approach
Crypto market crashes can be managed by exiting fiat currencies, and many trade experts consider this as a smart drive. The Crypto Asset Management uses this strategy, and this fact is verified by the managing director of the firm, Tim Enneking.
Experts exhibit a clear sign that a proper strategy and knowledge about the market time is very necessary for this stunt. One should be concerned about the time he is exiting the market and the time of entry as well. A warning sign is that you should go for the money you can afford to lose, as huge profit has huge risks.
Opportunities In The Dark: profit during crypto crash
The Crypto market is the most volatile marketplace. You may see a complete crash or rise in the market, but they all flow with the trend. Grab it! If you have good hands over technical analysis of the market trend, then you can collect profit from the small fluctuations even in a crash.
A deadly crash even moves through certain peaks, and it never moves straight to the bottom. Apply the short-term buy at low and sell them at short-term high. Here also, never invest a huge chunk in extracting a lot. Move strategically and apply multiple moves so that even if you lose, you can manage.
Diversify your investments
Crypto is volatile, and no one can trace the exact path it will lead to. Any sort of event, situation, and internet influence can turn the table. Smart investors always diversify their portfolios.
Some of the coins can withstand a crash. If you have diversified assets, then there is a chance to overcome losses when a single asset goes down or even in a market crash. A diversified mind always searches for a more stable and potential coin; switching coins and fund diversifying provide stability and assurance.
Rinse And Repeat
A volatile market will show the reverse trend. Likewise, a crash will recover one day. Some experts believe in investing and waiting for recovery and repeat. This is the easiest way of gaining profit.
The biggest thing in trading is patience, you have shown the courage to buy more, and at the same time, you have to wait for it to grow. You can sell the assets which withstand the crash and invest or exchange the currency with new potential coins.
A frequent change is the name of this market. Experienced traders always set themselves for the best and even for the worst. One thing that can help every crypto trader is knowledge of the market and a great amount of patience.
One can not predict where the graphs will move in the next minute; it doesn't matter how confident you are. But the possibility is there to minimize the loss with skillful moves. Apart from that, we can not run away from the fact that huge profit comes with huge risks.
The above strategy may help you at least to minimize your loss, if not profit. But these strategies are performed by experts with adequate knowledge of the steps they are going to take. Don't end up losing what you have, but the amount at risk that you can afford to lose.