What to do When Bitcoin's Price Crashes?
Going into 2018 Bitcoin's price has dropped significantly, from around $19,900 on 17th December 2017 right down to $8,036 on 4th February 2018.
Preparing yourself ahead of time allows you to take advantage of the situation, and even during the drop being aware of certain things can be beneficial. This guide will go through things to do before and during what people refer to as Bitcoin price 'crashes'.
Bitcoin crashes are common
Each time Bitcoin's price crashes, there is a very real chance that it could mean the end of Bitcoin, regardless of what anyone says you need to be aware of this risk. But historically, the January/February 2018 Bitcoin 'crash' is not the first. Percentage-wise this looks to be a 59% drop at the moment.
Some previous Bitcoin price 'crashes':
- In June 2011 there was a drop of 68%.
- In August 2012 there was a drop of 51%.
- In April 2013 there was a drop of 71%.
- In November 2013 there was a drop of 45%.
- In February 2014 there was a drop of 49%.
- In June/July 2017 there was a drop of 36%.
- In September 2017 there was a drop of 37%.
So regardless of how many people say a current crash is the last, it might or might not be, no-one really knows for sure. A lot of what you're seeing should be considered FUD (fear, uncertainty and doubt). You need to decide this for yourself. The phrase 'hope for the best, plan for the worst' seems appropriate here, where regardless of how much you think Bitcoin will crash or go back up, consider your options if the opposite happens.
Steps to prepare for crashes/reduce risk
If Bitcoin is currently doing well or crashing, these steps can be useful to decrease risk/potential losses:
- Set up a stop loss. Currently Bitcoin's price is at $8,036. Let's say you think it won't go much below $8,000. You could set a stop loss at $7,500. This means if you're right, you'd keep your Bitcoin; but if you're wrong, your Bitcoin position will be closed to prevent further losses. You can also set up stop losses between altcoins and Bitcoin. See our guide on crypto stop-loss strategies for more information.
- If you don't use stop losses, don't put all your money in crypto. Look at historical crashes, work out how much you would have lost due to them. Work out how much you can afford to lose and never go above that amount. Many people have taken loans out to invest in Bitcoin, or invested their life savings; don't do this, there's a very real risk that you could lose it all. If you're reading this too late and you've already suffered massive losses, see this thread.
- As the amount of money you invest in Bitcoin goes up, emotions will start to take effect. Be prepared for them. If you've never experienced losses from investments before, they can trigger strong emotions to sell your money immediately to prevent further losses, and even depression in many cases. Consider these in advance, maybe list all the reasons you shouldn't sell in this scenario - so when it happens you have something to fall to. Just from our perspective, even after experiencing several Bitcoin crashes, the emotions are still there; the urge to sell is very strong, each day we have to list the reasons to not panic sell. Similarly when Bitcoin is at all time high's, be aware of FOMO (fear of missing out) - we explain this in the next point.
- If you've just lost a lot of money on Bitcoin or an altcoin. Consider why you bought it in the first place. Was it because you believe in the project? Was it because everyone online told you to? Was it because you thought you'd earn lots of money. Try and work out if it was because of FOMO, or if it was a legitimate reason. If it was FOMO, then learn from this so you don't act on it again.
Tips while Bitcoin's price is low
If you've invested lots of money in Bitcoin and it's price has dropped, the situation can appear to be pretty bleak; but being aware of a few things can avoid regrets later on:
- Most altcoins tend to be tied to Bitcoin's price, so when Bitcoin crashes most altcoins will too. Some will crash further than Bitcoin percentage-wise and some won't. Look through some altcoins you believe in, and if they've crashed harder than Bitcoin, consider buying some of them with your Bitcoin. Although the fiat value of Bitcoin may be lower, you might be able to get a good deal on some altcoins.
- Avoid buying any fiat-based items with your Bitcoin. For example reinvesting on cloud mining websites, buying items online, etc. As the fiat value of your Bitcoin is lower during a crash you you'll have less buying power, so the best bet is to either cash out if you can't risk further losses, or to 'HODL' until its value goes back up.
Monitoring your crypto portfolio's value
When first buying Bitcoin, you might use one of the larger exchanges like Kraken or GDAX. But if you want to buy smaller coins that aren't in say the top 30 by market cap, you'll likely have to create accounts on multiple exchanges. This can cause big problems where you're not really sure how many coins you own and what their value is in fiat.
Two things to note here:
- If this is money you can afford to lose, then this is arguably a good thing. Not knowing the exact fiat value of your portfolio means you'll be less emotional during crashes (e.g. if you've suffered a massive loss and plan to hold long-term, it may be best to be ignorant to your current loss).
- If you can't afford to lose this money, you should really use a portfolio/coin tracker to monitor the fiat value. We've been developing one ourselves here, which you're welcome to try out. Alternatively see this guide where we go through several crypto portfolio/coin trackers.
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