Published 6 months ago • 7 minute read

How to Survive A Crypto Market Crash

Elon Musk tweets something, the entire retail crypto market goes insane. Some government threatens to ban crypto, the entire retail crypto market goes insane. End result, crash and burn. But the truth is, the crash and the burn are only in your head, it’s not the reality of the situation, because for savvy investors it's bargain week, and everything is on sale.

The way you think about a market crash and the way you handle it will define your maturity level as an investor more than the picks in your portfolio. Because it’s easy to be a warrior when there’s no war, it’s not so easy when the bombs start falling around you. In the heat of battle, distress, and madness of a crash, you can really see who is solid in the market and who isn’t. So if you’re new to the game and you saw your portfolio go down 75% and felt like crying, here are five strategies to keep in mind for any future madness that comes. And, yes, the battle is coming again, so sharpen your sword now so you’ll be ready for future action.

Buy Value not Hype

This is one of the key basics you must do from the beginning of your journey into the cryptoverse and into investing in general. All too often we see the media blasting images of some 21-year old meme coin millionaire who invested $1,000 into ABC Coin for a fraction of a penny and became a millionaire overnight without thinking or planning anything. Then millions of people ape into the same coin to get rich quick and end up losing their life savings and hanging on the edge of suicide. This happens constantly because these people follow the way of the gambler, not the professional investor. Gambling is throwing all you have into a chance you might win, but realistically, most won’t.

Investing is throwing part of your money behind something you researched and believe really has a high potential for success due to the value of the project, so you’re willing to take a calculated risk on it. There is a sea of difference between the gambler’s mindset and that of the investor. A real investor affirms their position in the market by researching and understanding the value of what they are putting their hard-earned money into. When you understand the value of your investment, turbulence in the market wouldn’t shake you out so easily anymore because you have confidence in your decision. It’s like a person who enters a marathon after training for five years to win it and a person who decides to run simply for the fun of it. Which one do you think has more confidence in winning? It’s that simple.

Have a Plan of Action

Because the crypto space has almost no barrier of entry, literally anybody and their cat can come and invest in projects that catch their fancy. The upside is that new people can invest without any difficulty, the downside is that most people who do invest, know absolutely nothing about the basics of being an investor. So if you want to avoid the newbie pitfalls when you start out your crypto investing journey, start making a plan of action so you know when to enter a position and when to exit it. For example, I believe greed is a vice that kills, so I enter a position on a crypto project I truly believe in and when I’ve tripled my money I take out my initial investment and leave the rest to run until the moon if it wants to.

For me, protecting my initial investment is the most important thing so I can take it and re-invest it into the next project while the previous one runs, and I slowly take profits along the way. It’s conservative and I won’t get rich overnight, but I also will never lose all my money in a single deal. That’s a strategy. Some will agree and some won’t, but I have a plan of action and that’s the key. You can’t invest blindly and just sit in investments forever because you never actually make money until you press the sell button. And if you don’t plan ahead, you’ll never really know when the right time is, you’ll just be guessing.

Hold the Line and Fight

One of the worst mistakes you can make in a crypto market crash, or any market crash for that matter is to sell your assets when everything is burning. Immature investors get very emotional about their portfolios because they fear a huge loss, or even worse, all the money in their portfolio represents their life savings, their children’s college fund, sometimes even their rent for the next month. This isn’t investing, it’s, once again, gambling.

Great investors like Warren Buffet, Ray Dalio, Mike Novogratz, and Sam Bankman-Fried, don’t invest their rent money into anything. They invest money they can comfortably lose and not cry over if it crashes to zero the next day. And if those investments do well, then great! and if they don’t, well life goes on, let’s go find another investment. When you invest like this you disengage your emotions and use logic instead, and you’ll have the intestinal fortitude to hold the line and fight through market crashes. Because, really, you haven’t lost a penny unless you panic and hit the sell button, so what are you worried about? If you hold the line, the market will go up again and you’ll be all roses and sunshine after a few weeks. But if you panic sell, those guys I mentioned above, remember them? they’re literally waiting for you to bend over and sell cheap so they can grab your assets at a 75% discount.

Manage Your Risk Properly

Another major mistake is over-leveraging yourself because you want to get rich quickly. For those who don’t know, leverage basically means the exchange will lend you money to speculate on asset prices going up or down. So I have $100 and the exchange lends me $900 on top and now I have $1000 to trade with. Seems great in theory, but in reality, the margins of error exchanges give you in those agreements are so thin you’re almost guaranteed to lose unless you really know what you’re doing. As they say in Vegas, “the house always wins”.

For a bit of perspective on leverage remember this, professionally trained specialists use 3x-10x leverage and that’s really high for them. I’ve seen some exchanges offering newbie investors up to 150x leverage to trade with after watching a three-minute video on how to use leverage. That's extremely risky. So if you’re new to investing, stay away from leverage. But if you decide later on you want to take advantage of it, because it is very useful if you know how to use it, then invest time into educating yourself to minimize your risk when you trade.

Diversify and Compound

If you take a look at the most powerful, influential, wealthy people in the world, one thing you’ll notice going through all their portfolios is the diversity of their income. Wealthy people don’t have a single source of income, they have multiple streams of income so if one dries up the second or third one will keep them afloat. This reduces their risk and affords them less stress in times of turmoil and market crashes. So diversify where you get money from in your life: salary, crypto investing, side-hustle selling tulips, the choice is yours, just have money coming from different unrelated places. Also, take advantage of the excellent DEFI (decentralized finance) tools available in the crypto space these days. You don’t need to have all your money in the markets, you can keep some liquidity in the form of stablecoins (backed by fiat currency) like USDC or USDT and stake them for 10% interest per year. Compared to a bank that gives you 0.5-2% if you’re lucky, DEFI is a golden goose just waiting to lay eggs for you. Platforms like crypto.com, for example, let you stake in their DEFI wallet and their main app relatively easy and hassle-free.

So take these five strategies into consideration in your crypto endeavors to reduce your risk and your stress level when markets crash and the universe seems like it’s conspiring against you.

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About the author: Aniekan U. is one of the writers at Cryptowisser.com. With a background in technology and Crypto, he has a well-rounded view of the space and loves to research blockchain topics.

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