The cryptocurrency markets have gone through multiple cycles of rising and decreasing since their start in 2009, even within the larger ongoing trends known as bull and bear markets. 

While each market fall has been followed by a comeback and strong increase so far, moments of decline may be stressful and difficult to navigate for both experienced traders and new investors. So, in this review, we will guide you on what is the correct way to react to a crypto market sell-off.

Assess the situation first

It's possible that fundamental news, rather than price action or rumour, has impacted market mood. There have been a few moves that may be the reason behind the expanding market, which was receiving large capital inflows. So, to get a comprehensive picture of what is going on, you must first assess the entire issue.

Sometimes the game turns out to be a lot bigger than you anticipated. As an example, China's decision to prohibit financial institutions from providing crypto-related services in 2021 was extremely detrimental to everyone. The move was a follow-up to the country's 2017 ban on cryptocurrency exchanges. However, individuals in China were not forbidden from owning cryptocurrency. The Federal Reserve then chose to limit liquidity in the US banking system late in 2021, and several cryptos have been on a steep decline far into 2022.

Read the news to find out where the negativity comes from

Not long ago, cryptocurrency was a niche issue, thus locating relevant content was easy because there was such a small pool to choose from. People now chat about it at lunch, publish their wallet balance on the refrigerator, and print hundreds of NFTs.

Evaluate the sell-off as it grows and news starts to circulate about it. Before you jump into the market in a hurry, consider why you're trading cryptocurrency in the first place. Begin by reading the news and keeping up with current events. Here are a few things that can help you to evaluate why the market is falling:

• Examine the reasons for the sell-off.
• For news, keep an eye on the leading crypto specialists and channels.
• Participate in the crypto community's social media channels.
• Discuss the circumstance with them, as well as the reasons for it.

Hedge your portfolio

A hedge is a strategy for reducing the risks associated with an investment. It is an instrument or method that increases in value when the value of your portfolio decreases. As a result, the hedging profit covers part or all of the portfolio's losses.

Following are the methods in which you can hedge your crypto coins during a market plunge:

• The basic, and by far the most expensive, a hedge is a long-put position. Typically, they use an option with a strike price of 5 to 10% below the current market price. These options will be less expensive, but they will not safeguard the portfolio from the first 5% to 10% of the index's loss.
• Buying a put option and selling a call option is what a collar is all about. Part of the cost of a put option can be offset by selling a call option. The downside is that the potential for profit is limited. The call option will lose money if the index rises above the strike price of the option. Gains in the portfolio will make up for this.
• A fence is a result of combining a collar with a put spread. Buying a put with a strike price close under the existing market level and selling both a put with a lower strike price and a call with a considerably higher strike price constitutes this strategy. As a result, this low-cost structure protects some of the downsides while also allowing for some gain.

Speculate on the short side

It is a low-cost technique to protect equities from a potential short-term fall. Selling and then repurchasing stocks might have a considerable impact on the stock price. There are lots of ways to cryptocurrency short selling. As a result, we've listed some of the famous methods below:

• Margin trading: The margin trading platform is one of the simplest ways to short Bitcoin. It allows investors to "borrow" money from a broker in order to conduct a transaction. Furthermore, it is legal as many exchanges and brokerages permit it.
• Futures: A buyer agrees to acquire security with a contract that defines when and at what price the security will be sold in a futures trade.
• Call & put option: Traders can also short Bitcoin using call and put options. If you want to short the currency, you would place a put order, most likely with the help of an escrow provider. This indicates you want to be able to sell the currency at the current rate, even if the rate declines later.

Speculating on a negative price move can be difficult but also very rewarding should you time your entry well. I recommend using a derivative exchange to short sell crypto since they don’t limit you to an expiration time such as futures and options platforms.

Add to your blue-chip investments

It is the best option to invest in quality and expansive coins. Due to their decreased price, you can buy them at a rather cheap rate during a market plunge. It is a worldwide strategy among crypto traders. You can basically sell them when the sell-off will be over. This will earn you quite a remarkable profit if this technique is done right.

Sell early to reinvest at a lower price

It is maybe the most well-known proverb regarding profiting from the crypto market sell-off. This method can be difficult to implement because prices have a significant influence on emotions and psychology, making them difficult to anticipate.

Selling crypto coins at a high price and buying them back cheap is a technique in which you sell them while they still have worth. It needs to happen just before the market takes a plunge. After that, you must repurchase them at a lower price. It should happen right at the end of the sell-off period. You have to rely on trusted indicators that will predict when the market is going into the sell-off phase.

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At 1:47 am ET on Thursday, the price of Bitcoin was down 8.76% to $26,848.20, according to Coin Metrics. Meanwhile, Ethereum dropped over 13% to $1,832.33.

Crypto dropped alongside stocks after the Bureau of Labor Statistics reported consumer prices for April were up 8.3%. This figure came in somewhat higher than predictions by economists polled by Dow Jones and spooked investors. As such, many investors exited risk assets, including crypto. 

“The concern now for crypto asset investors is when the slide will end,” said Simon Peters, a crypto market analyst at trading platform eToro.

“The market is caught in the wider adversity of investment markets that are battling to decide where comfortable levels are in the wake of interest rate hikes designed to quell soaring inflation around the Western world.”

This is the second occasion this week on which Bitcoin has tumbled into the $29,000 range. Analysts have called $30,000 a key level for the cryptocurrency by market cap.

In the past month, 15.5% of all Bitcoin wallets slumped into an unrealised loss as the cryptocurrency dropped to the $31,000 level. 

Glassnode analysts noted that this sudden flurry of “urgent transactions” amid the latest Bitcoin sell-off, which saw investors pay higher fees, indicates that they were willing to pay a premium to speed up transaction times. Over the last week, the total value of all on-chain transaction fees hit 3.07 Bitcoin. To date, this is the largest recorded in its dataset. 

Glassnode’s report noted that “the dominance of on-chain transaction fees associated with exchange deposits also signalled urgency,” a point which further supports the argument that Bitcoin investors were seeking to de-risk, sell, or add collateral to their margin positions amid recent volatility for the market. 

Over $3.15 billion in value moved into or out of exchanges during last week’s sell-off. This is the largest sum since the market reached its $69,000 peak in November 2021. 

The longest bull market rally in history has further to run – but investors may wish to start to build cash positions before next year.

The message from Tom Elliott, deVere Group’s Senior International Investment Strategist, comes after the S&P 500 index reached a new all-time high late August, and recorded its longest ever rally (which began in March 2009).

Mr Elliott comments: “Wall Street is celebrating the longest stock market rally in history. One suspects it has further to go, given that the current defining features of the U.S. economy - strong growth and a cautious Fed - are an investor’s dream.

“This happy combination can be seen in last week’s upward revision to second quarter U.S. GDP growth estimates, to 4.2%, which comes just a week after Fed chair Jay Powell promised caution over the pace of interest rate hikes next year in his address at Jackson Hole -- although he did as good as confirm two more rate hikes this year, in September and December.

“Furthermore, global stock and credit market valuations are more attractive than at any point this year, thanks to corporate earnings growth outpacing share price growth.”

He continues: “But while the outlook for Wall Street over the coming months appears good, as we go into 2019 investor sentiment towards the U.S. stock market may change sharply.

“Cautious investors may want to start building up cash positions, and so take advantage of any sell-off.

“After all, the Fed’s caution is justified: many economists suspect that behind the current GDP growth spurt are temporary boosts to the economy, such as tax cuts and strong exports of goods ahead of the imposition of counter tariffs by America’s trading partners.”

He goes on to say: “Then we have political risk, whether over trade negotiations, North Korea, Iran, and the risk of the impeachment of Donald Trump, should the Democrats win control of the Senate in the mid-term Congressional elections.

“But perhaps the biggest risk to investors is the steady draining away of global liquidity, as central banks end or - in the case of the Fed, actually put into reverse - their quantitative easing policies.”

Mr Elliott concludes: “A diversified multi-asset portfolio remains the best protection against unpredictable markets.  This should contain exposure to global equities and bonds, with property, gold and cash also included. After all, a 2% return on dollar cash isn’t to be sneezed at.”

(Source: deVere Group)

The recent sell-off of Bitcoin and other cryptocurrencies was simply a standard market correction, observes the deVere CEO.

The comments from Nigel Green, Founder and CEO of deVere Group, come as Bitcoin – the world’s biggest cryptocurrency by market capitalisation – was close to almost its lowest point of the year two weeks ago and continued its bearish action last week. Other major digital currencies also experienced a sell-off over the last fortnight.

But the crypto market headed back into the green on Monday, posting positive results as the bulls push Bitcoin back on a rally.

Mr Green, whose firm launched the cryptocurrency exchange deVere Crypto at the beginning of 2018, says: “Cryptocurrency markets are subject to volatility more than traditional ones.

“Despite what the doom mongers would want you to believe, the recent sell-off was only ever going to be temporary and prices were bound to rise again relatively quickly – as they are now doing.

"Previous to this sell-off, in recent weeks Bitcoin had experienced a pretty impressive rally, peaking at around $8,300. As such, what happened over the last fortnight was simply a standard crypto market correction.”

He continues: “For many investors, such volatility, of the kind that we saw recently, is used as a welcome buying opportunity.

“They look at the bigger picture. That’s to say, in today’s world, a digital, global currency simply makes sense to them. Or to put it another way, they believe that cryptocurrencies are the future of money.

“Such investors also appreciate that institutional and regulatory support is increasingly inevitable and could happen sooner than many previously expected.

“In addition they are seeing for themselves how more and more global financial institutions, major corporations and household name investors are now working with cryptocurrencies and blockchain, the technology that underpins them.”

Mr Green goes on to say: “Increasingly, savvy investors are aware that what is taking place is a maturation of a relatively new market – hence the highs and lows almost every other week.

“As such, they understand that they either have to buy and take a long-term approach – as is typically the best approach with almost all investing - or be prepared to miss the boat.”

The deVere CEO concludes: “As anyone who has analysed the sector in recent years will know, the dips and peaks are a usual part of the cryptocurrency market.”

(Source: deVere Group)