Robert Steinadler, 4 months ago

Crypto is crashing – could this offer new opportunities? 

By the looks of it, FTX and Binance started a feud via Twitter last weekend that resulted in a liquidity shortage and crash that is so far unprecedented. To some crypto veterans, this feels like Terra and Celsius repeating all over again. It is in those times when everything seems to be swallowed by a black hole that cannot be escaped when fortunes are made. 

How does crisis offer opportunity, and how could retail investors potentially act upon the recent events? 

The market could tank down further 

Not only is the drama around Alameda and FTX bad news for the whole market, it also happens during a critical moment for the stock and the crypto market. Tomorrow US inflation data will be released and will drive the expectation whether the Fed will keep increasing the interest rates or possibly pivot from its current course. 

Of course, we cannot make any reliable predictions about the effect that the release could have by tomorrow. Should the majority of market participants perceive the outcome as bad for the global economy, then crypto could tank down further. 

Other factors might also come into play. Facebook is laying off 11,000 workers, and it appears that unemployment rates could contribute to worsen the crisis. 

What are trading strategies during crashes? 

One of the most common strategies is to dollar-cost-average the market. The idea is that time in the market always beats timing the market. How to tell as a novice investor whether a bottom has been reached? 

Even professionals cannot foresee the future as the current crisis around FTX proves. Dollar-cost-average means to invest a fraction of one’s money over time. This could be every week, every month or when reaching a certain price target on the way down. 

The advantage is that the average entry price for the position is getting lower over time in a declining market. This strategy requires strict money management in order to prevent to run out of cash too early. With that in mind, tanking prices offer opportunity to buy when everybody else is hesitant or exiting the market. You may have heard the most famous crypto creed: buy low, sell high. It sounds simple, but the fact is that most traders fail to follow that simple formular. Everyone is too bullish at the top and too bearish at the bottom. One thing is for sure, a crisis does not mean there are no opportunities.  

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