3 ways to deal with a cryptocurrency crash

Cryptocurrency prices have plummeted in recent weeks, with Bitcoin (BTC) losing more than 30% from its November 10th high. Despite another steep drop this weekend, Bitcoin is still up around 55% from the previous year. But that doesn't make this volatility any less unnerving for investors Investors, especially if you are new to cryptocurrencies.

If you are watching in horror as the value of the assets in your cryptocurrency account decreases, you are not alone. Here are some ways to handle the roller coaster ride that is crypto.

1. Keep a long-term perspective

Investments in cryptocurrencies are extremely volatile. If you look at the chart for 2021, we have already seen several significant price drops. After each decline, cryptocurrency prices eventually rose and continued to reach new highs.

Don't focus on 24-hour charts. Instead, zoom out and look at the year to date. The ups and downs are a normal part of all market cycles, but they are more extreme with a new and relatively untested investment like cryptocurrency. As long as you haven't invested the money you need in the short term, you can afford to wait for the drops.

2. Don't panic

When you see the value of your cryptocurrency investments plummet, it's natural to want to cut your losses and sell your assets. However, this often means that you are selling at a low price and will not benefit from any subsequent recovery.

Let's say you see Bitcoin's price drop 20% and sell your holdings. What if the price suddenly returns to its original value? You have lost 20% of your investment and may be reluctant to buy it back.

You never really know what prices will do in the short term. They can continue to fall, but they can also rapidly rise to the top. So trust your original research and your investment thesis. If you believe in the long-term value of your cryptocurrency investment, make sure the price can recover.

3. Consider the purchase on the downside

People talk a lot about buying low and selling high, but in truth it is almost impossible to time the market this way. This is one of the reasons The Ascent advocates a long-term investing approach - if you only buy assets that you think will do well over the next five or 10 years, short-term price fluctuations are less of a concern.

However, significant dips can present an opportunity to collect more of your favorite tokens for a low price. For example, there may be tokens that you have had on your checklist for some time and have been waiting for the right time to buy. Or you may want to buy more than certain tokens you already own because you think they have strong long-term potential.

That said, don't fall into the panic buying trap either. It makes no sense to buy an asset that you have not studied and that you don't really want, just because it is for sale. And it's certainly not a good idea to spend the money you need to achieve other financial goals (or worse, borrow money) just to buy down. Investments in cryptocurrencies are still volatile and there are many unknowns, especially as the specter of more regulation still hangs over us. You might try to buy the drop only to see the prices drop even further.

Conclusions

Declines in cryptocurrencies are an integral part of this type of investment. If this is your first drop, the best advice is to hold on and wait for prices to recover. At that point, you may decide that investing in cryptocurrencies is too stressful for you, which is understandable. But don't make rash decisions. Give yourself and the market time to breathe before you start selling.