By Ravindhar Vadapalli
In a short amount of time, cryptocurrency in India has come a long way. A few years ago, India had essentially no exchanges for digital currency. Investments in unregulated digital assets, particularly Bitcoin, have, on the other hand, shown a stunning upward trend. Crypto assets are gaining popularity in India despite a market downturn in 2022, with an estimated 25–30 million investors putting some of their money into this risky but exciting industry.
However, 2022 was a tough year for cryptocurrencies as a result of a string of setbacks, a geopolitical situation, and global headwinds. The value of Bitcoin and Ethereum had dropped by more than 50% from their all-time highs in late 2021. Despite recent surges, the cryptocurrency market as a whole is largely in the red. As the value decreases, many traders and investors are suffering significant financial losses. So, when you suffer losses, what is the best next step to take?
Surviving the winter: gather the resources
After a disastrous year in which the value of digital assets crashed, cryptocurrencies have experienced an uptick in 2023. Although prices have started to rise again, the wounds are still fresh, and there is a lot to learn from the recent crypto crash. Any market crash generates a wide range of opportunities and risks. However, the adage “high risk, high reward” is not always accurate. Many of us might also be tempted to buy on dips, but while prices can and often do recover, the process may take several months or even years.
The best course of action to survive the crypto winter is to gather the resources and save what has been left. The primary advice any expert can provide is to stay on your toes and invest carefully. When it comes to trading and investing in cryptocurrencies, having a set of maximum loss and profit target objectives is essential for long-term success. Having a maximum loss criteria in place keeps you from losing all of your money and lets you stay in the game.
Unlike the stock market, crypto markets are highly volatile. Even though you might have lost a big chunk of your portfolio value to the market crash, this is not the best time for “revenge trading.” Not only in life but also when it comes to investing, patience is a virtue. Don’t panic and sell all of your stock either, because you might later regret it if the market turns around. Keep most of your cryptocurrency investments in well-known cryptocurrencies if you don’t want to reduce them to a minimum, and you can also explore more about strategies such as hodling with long-term thinking. Furthermore, learn from the mistake of putting all your eggs in one basket and follow the concept of diversification. Moreover, if you are still curious, you must research alt-coins or stable coins to be on the safe side.
Plan B is always useful
The best way to protect yourself from risk is to make sure you have a safe asset or an emergency fund that is adequately cushioned. Three to six months’ worth of living expenses are typically kept in an emergency savings account, which is typically kept in a high-yield savings account with easy access. A safe asset can be anything that serves as a hedge, including stocks and precious metals. Because nothing will consistently go up or down for a long period of time, it is crucial to have a cash flow plan in place before making any new investments. To determine whether to invest in a new asset or not, it is advised to run the numbers for the worst-case scenarios.
Turning the tables
Even when the market for cryptocurrencies has been plunging, there are opportunities if you know where to look. Whereas other investors see a cold and dark crypto winter, astute investors see a fresh window of opportunity to purchase assets at a discount. There will still be minor peaks and valleys as the market fluctuates, even during a downtrend. These short-term movements can be predicted and profited from by buying the lows and selling the highs. Investors and traders who have sharpened their skills can benefit from this. However, it is vital that you average your portfolio carefully. In addition, it is also advisable to steer clear of the herd mentality.
All things considered
It is crucial when investing in cryptocurrencies to avoid letting previous losses unduly influence present and future choices. Concentrate on what you perceive to be the cryptocurrency’s intrinsic value and let that influence your choices. It might be worthwhile to halt your fresh investments if you’re unsure of their value. In addition, it is wise to keep your investments in things you are familiar with. If you are still unsure, it might be best to speak with an investment expert who can help explain the cryptocurrency markets to you. Even though the sting of the crypto market crash may have affected you, all you can do is reduce the pain and plan ahead. Note that everything in the markets is temporary, and therefore staying smart about your investments can actually turn out to be lucrative.
The author is professor of blockchain, analytics and finance at Mittal School of Business, Lovely Professional University