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A Crypto Market Crash Is Coming. Here's How to Prepare – The Motley Fool

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by Emma Newbery | Published on March 6, 2022
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Four ways to protect yourself against the next crypto crash.
Check out The Ascent's cryptocurrency apps for 2022
The cryptocurrency market is notoriously volatile. That can mean drops of more than 50% in a matter of months as well as rapid price gains. After a price spike in November 2021, prices have trended downwards in recent months. It isn’t yet clear whether this is part of a bigger crypto market crash. But it’s certainly a healthy reminder that crypto prices can go down and investors need to be ready.
As a crypto investor, there are several ways to prepare for a market crash. Here are four of them:
The golden rule of investing in a risky asset class like cryptocurrency is to only invest money you can afford to lose. When you see stories about cryptos that gained over 5,000% in a year, it’s easy to get carried away in the hope you can see similar gains. But only a handful of cryptocurrencies produced those returns last year. With over 17,500 cryptos on the market, it takes a lot of luck to pick the ones that will skyrocket. Indeed, given the changing economic environment, there’s no guarantee any coins will see similar returns in 2022.
If you stretch your budget — or borrow money — to buy a cryptocurrency and the market falls, you could find yourself unable to cover everyday costs like groceries or your accommodation costs. On the other hand, if you only buy crypto with money you can afford to lose, a crash will be disappointing but not devastating. Importantly, you won’t be forced to sell at a loss, instead you can hold on and wait for prices to recover.
There are many different attitudes toward cryptocurrency investing. Some people see it as a good short term speculative buy, others want to get in early on what could be a transformative technology. Taking a long term perspective is a great way to guard against panic selling when prices drop. If you plan to hold for the next five to 10 years, you’re more likely to research carefully before you buy. And it’s easier to see a market crash as part and parcel of crypto’s volatility.
Picking cryptocurrencies with long-term potential is not easy. Many promising projects did not survive the great crypto crash of 2018. Some experts say 90% of cryptos would not survive a prolonged crash. Research can help identify cryptos with the best chance of long-term survival.

Our top crypto play isn’t a token – Here’s why

We’ve found one company that’s positioned itself perfectly as a long-term picks-and-shovels solution for the broader crypto market — Bitcoin, Dogecoin, and all the others. In fact, you’ve probably used this company’s technology in the past few days, even if you’ve never had an account or even heard of the company before. That’s how prevalent it’s become.

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We’ve found one company that’s positioned itself perfectly as a long-term picks-and-shovels solution for the broader crypto market — Bitcoin, Dogecoin, and all the others. In fact, you’ve probably used this company’s technology in the past few days, even if you’ve never had an account or even heard of the company before. That’s how prevalent it’s become.
Sign up today for Stock Advisor and get access to our exclusive report where you can get the full scoop on this company and its upside as a long-term investment. Learn more and get started today with a special new member discount.
Here are some factors to look for:
Emergency savings are like a financial airbag — they pop up and cushion you against unexpected disasters. Try to keep three to six months’ worth of living expenses in an easily accessible bank account. It may seem like a lot, but this will tide you through if you lose your job or face another financial crisis. A solid emergency fund can take some of the stress out of a crypto market crash, as it gives you the reassurance to know you can still meet your financial goals. If you don’t yet have a well-stocked emergency fund, start putting a small amount aside each month until you do.
High risk investments like cryptocurrency should only make up a small portion of your total portfolio. There are various ways you can calculate how much you want to allocate, depending on your risk tolerance, your crypto knowledge, and the degree to which you believe crypto could outperform stocks. But the crucial thing is to diversify. If you avoid overexposing yourself to any individual asset class, you’ll be able to handle it if one sector — like crypto — collapses.
We don’t know whether crypto will pick up again in the coming months, or whether this is the start of a longer downturn. Some are already calling it a crypto winter, but it’s much too early to say. One big factor is increased regulation, which could have a significant impact on cryptocurrency prices in the short term.
As a crypto investor, the best way to be prepared is to think long term, diversify, and make sure you also have money in other assets. These may include cash holdings, real estate, stocks, and other investments. Cryptocurrency is an exciting asset, but it should never be the only one.
There are hundreds of platforms around the world that are waiting to give you access to thousands of cryptocurrencies. And to find the one that's right for you, you'll need to decide what features that matter most to you.

To help you get started, our independent experts have sifted through the options to bring you some of our best cryptocurrency exchanges for 2022. Check out the list here and get started on your crypto journey, today.
Emma owns the English-language newspaper The Bogota Post. She began her editorial career at a financial website in the U.K. over 20 years ago and has been contributing to The Ascent since 2019.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Emma Newbery owns Bitcoin and Ethereum. The Motley Fool owns shares of and recommends Bitcoin.
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