The last week has been bad. And as this week just started it becomes clear that it probably won’t get any better. While we don’t provide financial advice there are a couple of things that you should pay attention to. A crash is not only a devastating loss on the balance sheet but also an opportunity to manage risk and adjust one’s own strategy if necessary.
In this article, we like to explore what to expect from the market and how those scenarios can be played.
No more risk appetite
The Fed decided to change its policy and put an end to the creation of money out of thin air and to raise interest rates. Most of the gains we have seen over the last two years have been made in the stock market as well as in crypto because money was cheap. Now that the Fed is pushing the breaks all markets that are dependent on that cheap money are crashing down.
Make a game plan
Again, this is not professional advice and we just like to point out a few basic things. The situation suggests that every investor has to ask themselves if they have enough liquidity in this situation. When you think that the market can’t go down any further it still can! Why is liquidity so important?
As many of our readers might be invested for a longer period of time, they might also have realized gains one way or another during the last year. Depending on the jurisdiction you are living in you’ll have to pay taxes for those gains in 2021. Only that your crypto portfolio is probably down.
If you have not already done it in December 2021, do it now. Make a game plan for 2022. How much do you owe in taxes? What are your personal and financial goals this year? Can you afford it if the market will see new lows?
In any case, if you don’t know how to manage these things and answer these basic questions this article can and will not help you. Seek professional advice if you need it.
When will we see the bottom?
All the other big crashes in the crypto market have been really bad. In 2018 Bitcoin went as far as – 85 % from its all-time high in 2017. Does that mean Bitcoin will go lower in 2022? That is possible, but nobody can say that for sure. Does that mean the sell-off is over and we bounce from here? Also possible, but again nobody has a crystal ball that can predict the future.
It is your own game plan that will guide you and should help you to mitigate risks. If you like to use the crash as an opportunity you might like to read our article about the dollar cost average strategy.