2022 is going to end with high inflation rates, fragile crypto market, and GDP in the red. We might be standing on the verge of recession. While experts hold different views on what to name the bear market sentiment, let’s have a look at 5 tips for investing in crypto during a global recession:
With inflation so high, it's critical that everyone takes necessary steps to protect their wealth in cash or stablecoins. You will have plenty of resources to make large allocations when bullish momentum returns. But during recession, it is important to preserve cash for day-to-day as well as emergency uses first. Meanwhile, as long as you trust the protocol you're using, there are still plenty of opportunities to earn yield across crypto markets. A better strategy is to diversify into investments that are well-positioned to withstand a downturn.
Dollar-cost averaging is a method of investing in which you buy a fixed amount of an investment on a regular basis, regardless of the current price. However, given a long enough time horizon, it has a very high chance of working in your favor. And nowadays, there are automated bots that do it for you, which is helpful. Recessions are excellent times to use a dollar-cost averaging strategy because you will buy shares as the price falls. You can use either dollar cost average with new money or simply set your dividends to automatically reinvest in the security, which will accomplish the same thing.
Even during a severe market downturn, some crypto assets retain their value. These are coins and tokens associated with market segments that are experiencing rapid growth. Cryptos used in the video game industry and online gambling, for example, have performed well despite market downturns. Some crypto assets will have the potential to outperform others during bear markets. However, finding them is time-consuming, and going long during a downtrend is dangerous. Therefore, this strategy should be used with caution. Certain indicators can be used to determine when an asset has reached the bottom for investors who have a basic or advanced understanding of technical analysis.
Derivatives are complex financial instruments that allow investors to reduce risk while making money even when market prices are falling. There are numerous strategies that use derivatives and contract combinations to ensure profit in downtrending and sideways markets. Derivatives help to reduce risk because if the trade results in a loss, the investor simply does not execute it.
It is abundantly clear that crypto assets are not immune to slowing economic growth. In fact, they are frequently the hardest hit. It is not uncommon for crypto assets to lose three-quarters of their value when recession fears arise. Popular crypto assets such as Bitcoin and Ethereum have dropped nearly 70% from their all-time highs as investors avoided risk assets after interest rates rose. But there is a silver lining in the midst of these dark times. Even if a recession is looming, no one knows how long it will last or how much it will affect the crypto market. We can expect crypto assets to recover when macroeconomic conditions improve.
It is still unknown if the crypto community will have to face another Great Recession (2007-2009). As a general rule, an emergency fund should contain enough money to cover at least three months of living expenses. If you haven't already, stop putting money into crypto assets and instead focus on following the above-mentioned tips to survive a global recession.
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.