A long-term approach for investors during crypto market volatility

To curb the inflationary pressure, central banks are raising interest rates, affecting the returns on many asset classes globally.

Several assets are undergoing market volatility, including the S&P 500 Index, which recently fell into bear territory as it dropped by over 20% from its recent high. Bonds have suffered, too, and with the looming signs of global recession, crypto markets have also witnessed a downfall. Investors are worried across all asset classes as ROIs have significantly dropped, but the impact is higher on crypto due to the volatile nature of the market.

Investors’ confidence has taken a back seat as Bitcoin’s price has plummeted substantially since the beginning of the year, and investors are worried about their future returns. However, it should be noted that such high volatility is not foreign to this asset class, as similar cycles of bull and bear in the market have been witnessed historically. Still, crypto has eventually emerged to outperform any other asset class.

There is a rising class of investors who are becoming first-time investors in crypto as they explore faster ways to grow their wealth amidst declining returns in other asset classes such as real estate, bonds, etc. But, these investors are now worried about their wealth as the prices have fallen and the sentiments are low. However, if we observe historical returns, it is evident that crypto is a long-term game, and those investors who entered early in the space and held on to their investments have gained higher returns compared to any other asset class. Although Bitcoin is down from its 2021 peak, it is still 10x higher than it was five years ago.

Every crypto cycle provides an opportunity for industry players to innovate and develop robust products for the ecosystem. The 2018 crypto crash resulted in innovative use cases and blockchain protocols emerging in Decentralized Financing (DeFi), allowing investors to lend and stake crypto assets.

Similarly, last year the first-ever crypto ETF was launched in the US, providing investors with a new regulated avenue to gain exposure to the asset class.

The current cycle provides an opportunity for the industry to focus on the infrastructure weakness on the security and compliance side. It has been observed that in the past few years, the industry has developed new protocols to ring-fence from recurring scams and hacks. Investors can dedicate this phase to their research on projects to make their platforms’ security robust and combat market weakness.

In this current bear market, it is recommended that the investors should take a long-term approach to their crypto investments, and they can also explore other ways of gaining exposure to crypto assets. There are passive ways to gain exposure where you can lend your crypto assets on exchanges and earn interest while your funds are locked up. Similarly, there are systematic plans for crypto where investors can dedicate a fixed amount periodically to invest in

crypto assets without the hassle of picking the coins as investment professionals examine and research extensively to pick the right coins.

There are many smart tools introduced by the crypto exchanges to help investors who want to engage in trading. For instance, CoinDCX provides a limit order that allows one to decide on a price limit or parameters for buying and selling cryptocurrencies. Similarly, one can opt for a stop order – another smart tool to buy or sell crypto once the price of the crypto reaches a specified price, known as the stop price.

Many such tools are available, and investors need to take advantage of these by going through the content available on the website.

Moreover, investors should be cautious in picking the assets and instead of relying on friends and family or social media buzz to choose the assets for investments, it is highly recommended that investors carry out their due diligence and invest in emerging opportunities and use cases that are growing fundamentally.

Crypto exchanges have created online investor education platforms offering tutorials in English and regional languages and educational content on crypto assets and blockchain to spread awareness.

In the past cycles, Bitcoin has fallen by 50% or more and even exceeded 80% in-depth, but each time it has fully recovered and created new all-time highs.

If history is to prove itself correct, the current bear market seems no different and instead provides an excellent opportunity to understand this space better.

Knowledge is your best weapon for identifying fundamentally sound projects. Bluechip coins with the largest market caps that have sustained the past cycles are possibly a safer bet in the current bear market.

To summarise, as an investor, you may:

-Take a long-term approach to crypto investments

-Explore passive ways to gain exposure through various options available to earn interest as well as systematic plans by dedicating a fixed amount periodically to invest in crypto assets

-Opt for a few smart tools available at crypto exchanges that help in smart trading

-Do you own due diligence before investing by referring to educational content; you must look out for use cases

Finally, the current bear market is an opportunity to understand this space and build better for a stronger Web 3.0 future.

(Ramalingam Subramanian is the Head of Brand, Marketing & Communications at CoinDCX)