We’re seeing lots of volatility and some double-digit percentage drops in the cryptocurrency market lately.
“What the heck is happening?!” you might be wondering.
Is it time to panic or should you HODL?
You’ll get whiplash just from watching.
Throughout the day yesterday, bitcoin wiped out nearly all of its gains for 2021, faster than Snoop Dogg could say “Drop It Like It’s Hot”.
From its peak of $64,829 in April, BTC has dipped below as low as $28,814.75 in the past 24 hours. That’s more than a 50% drop in a couple of months yo!
If you’re new to all this, welcome to the roller coaster world of cryptocurrencies.
No need to panic.
Keep calm, take a deep breath, stop watching the prices, step away from the screen and in the words of Q-Tip… “Let’s ride.”
Let’s ride out the volatility.
It’s hard to nail down the exact cause of this selloff.
For several veteran traders, this tumble is merely a major correction from the jaw-dropping crypto rallies that took place a few months back.
“Any asset class which sees a meteoric rise in the same way as we have seen in crypto is expected to correct,” wrote Iqbal Gandham vice president of transactions at Ledger, a hardware wallet technology company for crypto assets.
In other words, the faster you climb, the harder you fall.
The recent crackdown in crypto assets by the Chinese government may have also been the catalyst for this inevitable pullback.
Tighter regulations in one of the largest markets for cryptocurrencies has led to over 90% of the country’s mining capacity being shut down.
Not surprisingly, this is spooking many investors, spurring a lot of red across the crypto board.
Looking at the longer-term price performance, however, suggests that the declines are relatively tolerable. For instance, BTC is down nearly 20% for the week but is still up more than 200% year-to-date.
ETH is down roughly 30% for the month but is still holding on to nearly 200% in gains for the past six months.
Heck, it’s up by a whopping 670% year-to-date!
Nobody knows how long this volatility will last. But pullbacks are healthy.
The key to surviving a pullback is smart risk management and proper position sizing.
Pullbacks or trend retracements set the stage for the next rally by flushing out the weak hands.
Weak hands are people who tend to be easily spooked by price changes, and they often tend to buy at the top and sell at the bottom.
During a pullback, while the weak hands are freaking out, the strong hands are happily taking advantage and buying from them.
Strong hands are the people buying on the pullback because they have done their homework and believe the selloff is temporary.
And because they apply smart entry techniques, properly size their positions, and don’t expose themselves to excessive risk, strong hands DO NOT sell at the first sign of trouble.
Once the weak hands are finished selling, prices resume their uptrend because all the weak hands have been shaken out so there are no more weak hands to sell to.
Despite the recent selloff, I’m confident that the cryptocurrency market is here to stay.
It is growing market, not a dying one. And as all parents with teenage kids know… with growth comes volatility.
