The cryptocurrency market is notoriously volatile and heavily influenced by consumer mood. Don't invest a lot in this avenue because prices can change by 50–60% in a single day. Even if you enjoy taking on a lot of risk, just invest a tiny amount of your money in cryptocurrencies.
What would you do if, after a short period of time, your investment increased by more than 300 percent? You have four options, just like most investors:
A. Market them all.
B. Record some earnings.
C. Buy more.
D. Keep for a long time
The stock market, where prices are based on fundamentals and holding for a long time has produced favorable results, differs significantly from the cryptocurrency market. Prices in the cryptocurrency market are influenced by consumer emotion, and the market can be volatile. The Luna coin fell to zero last month. Other coins have also declined from their 2021 peaks, some by as much as 80–90%.
Is this the start of cryptos' demise? The business community disagrees. "Emotions determine prices. There will be hiccups along the way, but Rajagopal Menon, Vice-President of WazirX, asserts that our goal is to play a long game. Despite the recent decline in cryptocurrency prices, Rajagopal is optimistic about a rebound. In the last 12 years, he claims, bitcoin has lost 50% of its value seven times.
Others are also putting on a brave face. The cryptocurrency market is cyclical, just like any other industry. All asset classes are currently experiencing declines, and the cryptocurrency market is no exception, according to Mridul Gupta, COO of Coin DCX. Although Bitcoin is down 75% from its 2021 peak, he emphasizes that it is still 10x greater than it was five years ago.
Awaiting more foolish people
Even if the cryptocurrency market rebounds, the prospects of reaching the levels of 2021 are really slim. After the US Fed raised interest rates, the world's markets are in disarray, and the liquidity that supported them over the previous two years is rapidly running out.
What to Do?
Do not place large bets.
The cryptocurrency market is notoriously volatile and heavily influenced by consumer mood. Don't invest a lot in this avenue because prices can change by 50–60% in a single day. Even if you enjoy taking on a lot of risk, just invest a tiny amount of your money in cryptocurrencies.
Do not invest all at once.
Don't invest enormous sums of money all at once is another piece of advice that directly originates from the equity fund playbook. "No one can predict how prices will change in the days to come. As a result, instead of making significant commitments all at once, investors should spread out their investments. The SIP strategy will be most effective, claims Gupta of Coin DCX. Due to the fractional investments in cryptocurrencies, investors can make consistent monthly contributions.
Continually invest in blue-chip securities.
There are nearly 200 different cryptocurrencies competing for your attention. Additionally, there is a ton of unreliable material on social media, as well as self-described analysts giving financial recommendations. Verify the information generally before investing. Additionally, resist the urge to purchase unusual coins. Although more expensive, larger coins are more reliable. Look up the coin's market capitalization and trading activity. Small market size and negligible daily volumes are clear warning signs.
Stay away from behavioural biases.
Last but not least, and most significantly, avoid behavioural pitfalls like anchoring and loss aversion. Price levels during the 2021 surge might not be attained right away. Banish the concept if you are waiting for your cryptos to regain those levels. Because the market may remain sideways for longer than you anticipate, you should also think about booking losses.
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