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Top 5 tips for riding out volatility in the crypto market

A red graph showing the 2020 stock market crash and a screen showing prices going up and down.
Market volatility can be difficult to navigate especially for new investors new to trading. Here is how you can manage it. (Source: Getty)

Put simply, crypto market volatility is a term used to describe fluctuations in the crypto market, which may refer to factors like crypto prices, the volume of trading, or the amount of investors participating in the market.

Just like you would hunker down during a storm, crypto volatility can cause investors to duck for cover to protect themselves from any potential losses that come their way.

However, not all volatility should be feared. In fact, there are already multiple winners in the crypto market who understand how to invest with a level head and capitalise on market movements.

For those who are new to investing and don’t know how to efficiently ride out crypto volatility it’s not all doom and gloom; here are five tips to help guide you to make the best crypto decisions possible.

1. Understand your timeline

It’s no secret that there’s a high level of volatility in the crypto market at any given moment, especially when price swings mean crypto assets can rise and fall as much as 50 per cent in mere hours, let alone days.

In order to protect your investments, understand your timeline and when the most optimal times are to buy and sell crypto assets.

For example, if you need access to liquid capital from your portfolio on short notice, it might not be the best idea to invest. Remember it took three years for Bitcoin (which hit prices in excess of USD$70,000) to regain the highs of USD$20,000 that it experienced in 2018.

Montreal, Canada - 28 February 2018: Stacked cryptocurrency coins (Bitcoin, Ethereum, Litecoins)
The key elements to protecting yourself in crypto market volatility are much the same as regular market volatility (Source: Getty) (Marc Bruxelle via Getty Images)

2. Don’t give in to FOMO or panic invest

With most headlines filled with tantalising news about crypto all-time highs, it can be quite easy to fall victim to FOMO (fear of missing out), especially with the rise of unqualified ‘finfluencers’ hyping up certain assets.

Instead of getting carried away after seeing positive price action, don’t overlook fundamentals in haste; it’s best to take a step back and look at the full picture of the crypto asset you’re looking to invest in. Do your research in order to gain a clearer understanding of the longevity of the asset and whether it’s poised to ride out crypto volatility.

The same rules apply to panic investing. Humans tend to have emotional connections to their money, and often subconsciously apply these same emotions to their investment portfolio. Even the most experienced investors can fall into the emotional investing trap, especially during periods of volatility which may incite feelings of excitement if the market goes up, but can quickly turn to fear if the market crashes.

In order to mitigate issues that arise from panic investing habits, it’s a good idea to only invest when you have a cool, level head.

3. Consider dollar-cost averaging

Rather than investing lump sums into a crypto asset, it’s often better to average your investments out via a dollar-cost averaging strategy. The dollar-cost averaging theory purports to work whether markets are up or down because the aim is to average out the highs and lows of the market.

For many investors, dollar-cost averaging can be a good way to avoid the impossible task of attempting to “time the market”, as well as present a lower risk investment strategy for a high-risk asset, that offers the chance to hedge against market swings.

4. Set clear goals and diversify

It’s essential that investors set goals and pre-define their strategy before investing (for example their entry and exit points), in order to counter any harm caused by around-the-clock crypto markets.

Sometimes, you might think a crypto asset might be on its way to the moon, but as soon as you fall asleep it plummets instantly.

You should also look to diversify your portfolio with a range of different crypto assets including stablecoins like USDT, as well as stocks and commodities to protect yourself from potential losses.

5. Adopt a long-term investment strategy

Like investing in stocks, it’s smart to adopt a long-term investment strategy when investing in crypto. With crypto assets like bitcoin, market movements can cause asset values to fluctuate over different periods of time.

Rather than quickly selling a crypto asset off as soon as it falls, it might be best to hold onto each crypto asset for as long as you can in order to reap the benefits once it starts to boom again.

In some countries, holding crypto assets for longer periods can also be beneficial when it comes to tax purposes.

Overall, the best way to ride out the dip is to keep up to date with the news, in particular around what experts are saying about the industry. Digest as much information as you can, create a plan of attack, and try to stay calm and in control of your investments, especially in a bear market.

By Josh Gilbert, market analyst at global multi-asset investment platform eToro.

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