What to Know Before Investing in Crypto The crypto market is in the midst of a bear market, and it's been tough for many investors. But how do you cope?
By Adrian Nita Edited by Amanda Breen
Opinions expressed by Entrepreneur contributors are their own.
Crypto is a volatile market that has seen its share of crashes, but the latest Bitcoin crash showed that not all crypto investors are ready to give up. What's more, this fear may be making it harder for crypto projects to find funding and adoption. But does this mean there's still time to jump in? Let's take a look at how we got here and what you should do next.
Is cryptocurrency a good investment?
Cryptocurrency has been around for a long time, and in recent years, it's become more popular than ever. If you're thinking about investing in cryptocurrency, there are some things you need to know.
Before deciding whether or not investing is right for you, ask yourself if you're comfortable taking on risks and being excluded from the traditional financial system.
Investing in a new currency seems like an easy way to make money, but you have so much more than just your wallet at stake. The most influential and powerful companies worldwide are investing their time, money and resources into cryptocurrencies. Companies like Amazon have already begun to issue their own coins on top of Ethereum's blockchain system as a way for customers to spend cryptocurrency at checkout. This may be just what we need during these turbulent economic times when almost every country is experiencing hyperinflation or deflation.
Related: Cryptocurrency and Taxes: What You Need to Know
The recent market crash
After Elon Musk raised concerns over environmental impact and suspended Tesla's Bitcoin acceptance and China renewed its regulatory crackdown on digital assets mining and holding, the crypto market lost its value of almost $70 billion in just a few days.
China's government recently banned Bitcoin and other cryptocurrencies. This has had a massive effect on the price of BTC, given that China is home to 75% of all Bitcoin miners in the world, according to past records. After China warned about cryptocurrency disrupting economic order and facilitating illegal asset transfers, several major mining hubs, including Inner Mongolia, have taken measures against their businesses by implementing power reductions or shutting down operations altogether.
Recently, Bitcoin's price plunged below $30,000, but now, after the Republic of El Salvador announced its adoption of BTC as a legal tender, BTC's price has been moving upward, and currently, BTC is trading around $35,000. However, it's still down more than 30% from its recent all-time high price, which was around $64,000.
How to cope with a crypto bear market
The crypto market is in the midst of a bear market, and it's been tough for many investors. But how do you cope? If you can't manage your assets well, then it will be hard to become rich. The best way to handle a panic situation is not to count your investment in fiat currencies. One BTC is equal to one BTC and will remain one BTC, but keep in mind that one BTC today is equal to $35,000 and could rise to $65,000, as it's done in the past. Investors should hold onto their cryptos and not panic in the process.
Yes, you can make a profit in the bear market too. People use different strategies to profit in the bear market, such as shorting, margin trading and scalping.
What is shorting?
Shorting is both a strategy used in traditional investing and crypto. In shorting, you borrow coins from the exchange to sell them at their current price with the intent of buying more later when they're cheaper. This way, if prices go down as predicted, your initial investment will be protected because it's going back up again right after.
It can also act as hedging against other investments on a portfolio scale. This means that investors are less likely to lose out significantly even during bear markets. But, there still might be some risk involved for inexperienced traders who don't know what they're doing, so remember to use caution before making any quick decisions.
Related: 5 Ways to Participate in the Bitcoin Revolution
What is margin trading?
Margin trading is the process of borrowing money from a broker and using it to buy more specific coins that you are holding already. Most experienced investors use this strategy when the specific currency they're buying falls by a lot. Experienced day traders also used this strategy to make more money by reading the market and buying and selling daily ups and downs while in the bear market.
Scalping
Scalping is a technique in which you buy and sell cryptocurrency quickly, generating small profits from the difference between the bid and ask prices.
Scalping can be done by day traders that are willing to take on the high risk because they trade with very low amounts of money. They typically use technical analysis to determine when to enter and exit trades based on price swings or volume changes to maximize their returns while minimizing risks.
Participate in promising private and public sales
Every day, cryptocurrency enthusiasts are introduced to new coins and tokens. If you want to be an early adopter of these groundbreaking cryptocurrencies, participating in private and public sales is a great way to do so.
The Smart Chain is home to crypto gems and some of the most promising projects going live soon like Degethal, which aims to solve cryptocurrency space problems today.
The goal of cryptocurrencies is not simply to make money. They are designed to become their own unit of value that cannot be manipulated by outside sources such as governments or banks.
It's essential to do your due diligence on each cryptocurrency before making an investment decision, as they are unregulated assets with volatile prices. Many people have made significant gains by investing in cryptocurrencies. Still, it's also possible to lose all your money when trading these assets if you don't know what you're doing.
