When the market falls, we have an opportunity to buy at a lower price. This is the best solution, but it can be a difficult decision because of questions like: "What if the market falls even more?" or "Isn't a bear market starting?" We will explore these dilemmas in this article, trying to find a solution to each.
Talking to a good old friend living in Canada now about the crypto market made me write this article. I am not an expert, but I started with BTC in 2013 and have some experience by now with crypto.
On the other hand, I am always shy to post in Leo because I know many people are better researchers, greater investors than I am. But I will continue each time I feel I can do it and write here to maybe help others on the road.
What does it mean that the market is falling? These are market corrections. Sometimes they are bigger or smaller, but in principle, we see that everything is red, most cryptocurrencies are declining, starting with Bitcoin and down to the smallest tokens.
What is a cryptocurrency flash-crash?
It is a sudden drop in the price of cryptocurrencies, as we saw a few days ago when the price of a Bitcoin fell from approx. $ 60,000 to $ 50,000 in just a few hours. If you have crypto and see the prices live at the time of this rapid fall, you will be tempted to panic and sell, so that you do not lose too much. But this is the most contraindicated decision. Buying as soon as you see the drop is also not good, because, as it is said in the terminology of traders: Do not try to catch a falling knife. A falling knife is, by analogy, a rapidly falling price. A better decision is to start buying when the price slows down, to buy gradually, to catch a price as cheap as possible. You will have to be patient, not let panic overwhelm you, especially when trading platforms get stuck in such moments.
Why do fixed platforms get stuck when the market falls?
No, it's not a conspiracy, don't think about Robin Hood and the actions of Gamestop. Trading platforms crash every time there is excessively high traffic and the servers can't cope. This amplified traffic is generated by the large number of people, who panic and want to sell when they see the market fall, much like in the last season of Game of Thrones when the HBO platform could barely cope when it was the live episode. Ideally, you should be among those who are preparing to buy.
What if you bought and the price continues to fall?
It is best to buy gradually. If you have 50 or 500 or 5000 USD, buy step by step. A "sudden" fall does not mean that it lasts a second, it can take several hours and we are tempted to hurry. It is difficult to assess how long the fall will last, or if it is a correction that lasts several weeks. We can't know exactly how long it will take and how much it will fall, so it's good to invest in steps, little by little.
If you have already invested all the money and the price continues to fall, it is best not to do anything, to continue to do HODL. Especially if it's just a flash-crash, the market will recover quickly, maybe until the next day, even if not the same as at the beginning.
What if a bear market actually starts?
The crypto market is volatile, so we should always expect temporary price drops. We can't think that a bear market starts with every little correction. It may seem like a massive drop to us, but a healthy, natural correction is a drop of around 30% and is perfectly normal for a bull market. If we have a 15-20% correction as it was 2-3 days ago, it does not mean that a bear market starts. At the moment, there are no indications that the bull market is over.
Why do all cryptocurrencies fall at the same time?
Cryptocurrencies fall simultaneously, almost all of them because they are related to the price of bitcoin. In the crypto market, the leader is Bitcoin, in the sense that it dictates the general direction of the market. If the price of bitcoin decreases, the prices of other cryptocurrencies will also decrease, with small exceptions.
But why? Because, the price of many cryptocurrencies is expressed in bitcoin (more precisely in satoshi, a fraction of Bitcoin). Their price is not used directly in fiat (USD, EURO etc.) because the trading platforms express it in BTC. Example: If the BTC price decreases and the LTC is priced at 0.004 BTC, the Litecoin value in USD will automatically decrease as well.
In the world of DeFi, the price of tokens is rather influenced by ETH or BNB (on Binance Smart Chain), but also by SWAP tokens (uniswap, pancakeSwap) and the way the price is set is more complex, therefore, they are not correlated so directly with BTC, but if the market falls significantly, they will be affected as well.
Why buy when the market falls?
At first glance, it seems irrational that when the market falls and many sell, you start buying. Let's remember the bitcoin price in March 2020, when it fell sharply, reaching below $ 4000. Those who had the confidence to buy then, now enjoy considerable profits. Of course, we will not catch such a bargain, but as long as we are in a bull market, it is a good idea to buy the corrections. These price corrections can be considered discount moments when we can buy bitcoin at a discount (or other cryptocurrencies).
These are just my humble thoughts related to this subject and it's something that I wanted to share with you also, especially with beginners in crypto.
PS: Any engagement will be appreciated. We all need fresh perspectives and more savvy people to guide us!
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