Most cryptocurrencies have lost 25-50% of their value in the past week and several people have asked me “what the heck is going on”. While this is a very large correction, a correction of this magnitude tends to happen every few months. In September 2017, the market cap fell from 170 billion to 110 billion and many people claimed it to be the end, yet we’re standing at 500 billion now. The recovery is beginning now, although it may fluctuate up and down a bit before fully recovering.
Comments to Newer Investors
I understand why people who newly got into cryptocurrencies 2-3 weeks ago are angry and panicking. They missed a lot of the ups that happened in past months and all of a sudden they see a crash and they’re inheriting the losses. They’re afraid that they got in at the wrong time. But people who have been into cryptos for a while have experienced large corrections before. While it would have been a wise idea to sell (or Tether up) as the crash was starting, holding on and waiting for a recovery is the best option now.
Yes, it would’ve been better to have waited for a correction like this than to have invested a lot of money a week ago obviously. You can get a lot more coins for your dollar right now. But nobody is a mindreader. We know that major corrections happen, but we had no way of knowing whether this would’ve happened in mid January, late January or even sometime in February. Of course, hedging bets when risks are anticipated is a good idea, but in general, holding and being patient is a safer bet than betting on which times of the week a coin will correct or surge.
Don’t Be An Emotional Investor
It’s normal to be euphoric during surges, anxious during ranges and frustrated during crashes. It’s normal to be emotional as a human being, but I try the best that I can to keep that separate from economic or crypto decisions. Don’t take the recent major correction personally; keep in mind that everyone’s portfolio is down and not just yours. However, making decisions based on strong emotions in either swing tends to lead to reckless choices which often don’t pan out well. For those who are holding on to their coins during a correction, it’s probably a good idea to take a break for a few days and not look at your portfolio every hour as it ranged up and down.
I also understand that some people are very angry, seeing nothing but red when a major correction happens. For some people all of the facts, context and analysis in the world won’t be enough to convince them of the market’s mid and long term potential. For someone who will only be satisfied when the coins recovery and view any other thoughts on the situations as glib justification, then there is nothing that can be said and waiting is the only answer.
Many Coins Are Undervalued Right Now
The massive surge in December and the massive correction in January were both attributable to people in the market overreacting. In January, people did panic a bit much over news articles about foreign governments stances on cryptocurrencies without researching the issue in depth. As a result, the entire market tanked and even coins which were perfectly stable and healthy have lost value. In this case, there are many coins that are undervalued right now; many people took their money out of perfectly fine coins from fear of further loss, but this doesn’t mean they stopped believing in the coin’s mid to long potential or that they won’t re-invest in it once the market is stable.
Should you invest right now? That decision is up to you. Some people prefer to wait until the market fully stabilizes rather than risking a double-dip or a strong daily fluctuations. Others prefer to reinforce their current positions by buying more of the coins they already have at a cheaper price to reduce the overall cost they got it at.
Fear of Missing Out
In December, a lot of new alt coins were shooting up and investors enjoyed the satisfaction of having a new coin double in value almost every day; however, this is not sustainable growth. The realistic fact is that we’re not going to be able to have 90 coins in our top 50 and that many of the lesser quality coins that have rose substantially will eventually correct once people realize there’s no real product or team behind them.
News of China and South Korea regulating the crypto’s, exaggerated news headlines and discussions of them possibly being banned did result in fear which exacerbated the crash. There are also other factors such as people wanting to take some of their profits they made, people waiting until the new year to cash out for tax law reasons, automated bots selling coins once they went below their resistance.
However, in my opinion, these are ancillary causes and the main fact is this: coins were growing way too quickly and the market was inevitably due for a correction.
Just as much of the over-selling was caused by exaggerated panic, the over-buying was caused by “fear of missing out”. Many people bought coins at all-time highs because they feared that they would never be able to get them at a reasonable price again. Of course, the crash happened and now we can.
This is an editorial and does not constitute professional or expert financial advice.