The warning bells of a crypto market crash started ringing from the beginning of the year. Unfortunately, the warning bells turned to sirens today after Russia sent troops into eastern Ukraine and opened fire. Markets around the world came crashing like a pack of cards wiping away the majority of the gains made last year. For many, the current price seems to be lucrative as most of the coins are down -60% from their all-time highs.
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The ‘buy the dip’ brigade sprung up like mushrooms on social media urging investors to make use of the opportunity. While it’s true that the majority of the tokens are now up for sale, one shouldn’t blindly buy the dip.
Here’s what you need to avoid doing when the market is crashing:
Crypto Crash Lesson: Never Ignore Your ‘Risk Appetite’
Every single individual has his/her risk appetite and fears to invest anything beyond they can afford to lose. The rule is a natural built-in defense mechanism that saves us from damage that can’t be undone. However, at times, people tend to push their risk appetite a bit forward to reap larger rewards. Sometimes it works and sometimes it ends up with regret.
However, when an investor sees his/her portfolio suddenly shrinking, the mind casts a shadow. The ability to think wisely takes a beating and that is when people end up making wrong decisions.
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To fully understand how the human brain works during a crisis, read here for an in-depth explanation. It highlights the fact why the poor mostly make wrong financial moves but rarely the rich.
While everything is at a loss and many cryptos are at an unbelievable discount, the mind automatically begins to calculate ‘If I invest big now, I could get big returns when the market is up’.
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While the calculation is true (if it doesn’t dip further) the risk appetite takes a beating. Never ignore your risk appetite during the crypto market crash as a -50% loss can also turn -90% in less than a week, especially during a war.