Bullish Bitcoin price predictions have taken a hit following the recent market selloff that has seen Bitcoin crash from a high of $126,000 three weeks ago to under the $90,000 mark. More than $1.5 billion has been liquidated in the latest selloff, sending investors and traders scampering for safety. Many are asking: what’s going on and what’s next?
Is this the First Crash?
Bitcoin has suffered price crashes and corrections several times in the course of its history. In 2011, Bitcoin spiked from $1 to $32, before eventually crashing to $2, representing a 94% drop. Another crash occurred in 2014 after the collapse of Mt.Gox, the biggest crypto exchange at the time. The price was trading above $1100 before the collapse and fell to $150.
In 2017-2018, Bitcoin lost 80% of its value, falling from close to $20K to $3,200 in what was called the ICO bubble. March 2020 saw the pandemic-induced collapse that saw Bitcoin losing 50% of its value in a single day. If such major cataclysmic drops in Bitcoin did not shake the long-term confidence the major players had in Bitcoin, it is hard to see what will in the future.
So we have been there before. In terms of scale, the recent drop is actually a drop in the ocean and will not distort bullish Bitcoin price predictions for 2030 and beyond. But you need to know how to navigate some of the crash points that will occur. These are actually market corrections and are part and parcel of trading.
What to Do if You Caught in a Bitcoin Price Crash
1. Stop the rot
If you have found yourself on the wrong side of the optimistic Bitcoin price predictions, the first thing you need to do is implement strategies to stop losing more money. Capital preservation is primary; seeking other opportunities is a distant second at this time.
a) Leveraged Trades (margin trades, futures, perpetuals, options):
- If you have not received a margin call or hit stop out levels, immediately close or radically reduce any vulnerable positions that pose the most threat to your capital. If you have several active trades in losing positions, close the largest one.
- It may be a good idea to step away from the market until things clear up and your own emotions are under control.
- Re-evaluate your trades and ensure you never use the same risk levels that put you in trouble in the first place.
- Journal new rules for yourself: only use a maximum of X % of my capital in leveraged Bitcoin trades and apply a stop loss at Y% on any single trade.”
2. If you are in spot trades
Bitcoin will eventually recover, but the question is when. No one truly knows how long a recovery will take, and you should not try to guess. If you are in spot trades, your position will remain intact as you are trading 100% with your own funds in a long direction. Instead, use dollar-cost averaging (DCA) to buy more at lower prices, typically at a support level. By buying at lower prices, you reduce the average price of your entry.
NB: A crash is usually a great opportunity to average down your entry prices using DCA.
3. Choose Your Time Outlook Before Taking Action
In terms of time horizon, you are either an intraday trader, a swing/position trader, or a long-term investor.
- Trader (intraday, days)
- You are not interested in whether BTC hits $500K and when it will.
- Your focus should be on the key price levels, funding, liquidity, and instant crypto news.
- Swing/position (weeks, months)
- You have to pay attention to macroeconomic data and other crypto-specific announcements (such as halvings, ETF approvals, Fed decisions, etc.).
- In an imperfect market such as the crypto market, crashes are aggressive. However, a crash is merely a market repricing, and once this occurs, opportunities to re-enter the trend present themselves.
- Investor (long-term, usually in years)
- Your core decision is whether Bitcoin has enough in its sails to justify some of the optimistic Bitcoin price predictions from the major buyers.
- If so, a market crash is your best opportunity to buy more BTC at lower prices: the DCA playbook.
Once you have decided on your pathway, you can move ahead.
4. Rearrange your portfolio
A simple way forward:
- Consider keeping a portion of your portfolio in long-term positions that will remain open for several years.
- Set aside the smallest part of your portfolio for margin trading.
- Keep a sizeable chunk of your capital as stablecoins. These are used for DCA plays or to invest in other cryptos if an opportunity arises.
5. Stay away from altcoins just after a BTC crash
If Bitcoin crashes, liquidity is usually thin, and altcoins become more vulnerable. More often than not, BTC will drag altcoins lower, especially if it still has room to decline further. Instead, allow BTC to stabilize, either by moving sideways or by showing smaller spikes during liquidations.
This article was originally published on InvestingCube.com. Republishing without permission is prohibited.