Investors need to overcome emotional bias and act rationally during a downtrend to maximize future returns.

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Bitcoin and Crypto Crypto Investing Thursday, January 27, 2022 - 19:46

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The author is CEO & co-founder of Giottus Cryptocurrency Exchange

Bitcoin has done it again! Its investors have experienced a roller coaster ride in the last one year with prices varying between $30,000 to $70,000 for most parts. In spite of a general expectation of a strong start to 2022, the cryptocurrency market is now deep in red compared to its all-time-highs in November. This is how volatile markets behave. Naturally, investors are in a panic mode. Investing in a downtrend is difficult emotionally but, one can argue, that what investors do today can prepare them for great returns in the future.

Downtrends in crypto don’t last

Data from the last 12 years suggests that Bitcoin moves in cycles of uptrend and downtrend but on a macro scale, it is always going up in value. Increasing adoption among institutions and retail investors are bound to give fillip to Bitcoin’s price over time. Given that the overall crypto market structurally follows Bitcoin, we anticipate the market to gain strength over longer timeframes (years, not months). Hence, the prices we see today may be some of the best opportunities to gain entry into the market. Just like how difficult it is to envision Bitcoin at $5,000 today (a price last traded in March 2020), we can assume that Bitcoin may not come back to $35,000 levels after a few years. If we believe in blockchain and the fundamentals of cryptocurrency, should we go aggressive in this downtrend?

Emotions are not a friend

Many bad trades are often done because of emotions. Investors are happier to buy Bitcoin at $65,000 in November 2021 than to buy at $35,000 in January 2022. Most of the crypto investors see red on their portfolios today and it makes them wonder if they are even going to recover their monies. Short answer – yes, if they stick around for a bit. The amount of cryptocurrencies investors own do not change unless they sell in panic. Over time, the market prices will recover and compound. Best way to mentally prepare oneself is to adopt invest and forget strategy – just like how a family purchases a house but doesn’t ascertain its price on a daily basis post the purchase. The family knows that over time, the house may be valued in multiples. Another approach is to utilize this opportunity to reduce the cost base – if an investor had bought Bitcoin at $50,000, he can reduce that to say $45,000 on average by buying some at current prices.

Bearish markets creates the rich

Imagine a rich investor reacting to the market today. He/she will be delighted that Bitcoin’s prices have gone down by 20%. It gives them enough fuel to accumulate more for the future.

The above can be done by all investors irrespective of the scale of investments. As long as every investor has only pumped in capital that is not immediately required for regular life, they can continue to wait-and-watch or accumulate more assets. A popular saying in the investor community is “Bull markets give you good return on investments whereas bear markets make you rich”.

Good time to reduce over-exposure

Now, in spite of the above, if investors are worried about the portfolio on a daily basis, it probably means that they are over-exposed in terms of capital in cryptocurrencies. If so, this is a good time to prune the investments and ensure a healthy portfolio for the future.

Disclaimer: This article was authored by Giottus Cryptocurrency 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.

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