Crypto market: Why is there a crash and what’s next?

Reasons behind the crash

Inflation, the US Federal Reserve raising interest rates, and the war in Ukraine pumping up oil prices have all dampened market sentiment, which spread to crypto as well.

Cryptocurrencies were presented as an asset class separate from the financial markets, untouched by the instabilities of the stock markets. However, the past two weeks have shown that cryptos are not insulated from the broader market sentiment. An estimated $200 billion of investor wealth was wiped out last week.

Strategy for those invested in crypto

For those invested in the crypto markets, there is no need to panic even though things may not look good now. This asset class has always been volatile and such crashes have happened before – in 2021 and in 2017 – and it has bounced back to all-time highs. Investors should hold on to their investments and focus on long-term goals.

Crypto, as an asset class has, over the years, has shown it can deliver good returns and the lesson from the recent crash is that diversity in crypto allocation is important. Focus on blue-chip coins, rethink strategy, and depending on risk appetite, maintain crypto holdings at 10-20 percent of the portfolio.

Is this the time to bottom-fish?

Whether the crypto slide continues remains to be seen. However, there are chances the bear market will continue as investors remain cautious about buying on dips. After Bitcoin dropped below $30,000, its price corrected further when evangelists “bought the dip” or entered the market at a discounted rate.

Amid its day-to-day turbulence, Bitcoin and other blue-chip cryptos are likely to continue the zoomed-out growth pattern displayed over the past decade. Instead of waiting for an absolute bottom to start buying tokens, investors should average out their costs in small quantities as prices decline and follow the same strategy as prices start rising. That should smoothen out the volatility and enhance returns. So buy low and HODL – Hold On for Dear Life – from a long-term perspective.