Crypto Crash: What Investors Need to Know?
I’ve been asked this question a lot lately. I always provide the same response.
Have you recently viewed the news? Crypto News
The world is currently in a state of chaos due to growing housing expenses, skyrocketing gas prices, soaring food prices, and conflict. Since it appears that we are having a resection, cryptocurrency is impacted. Even while we assume that bitcoin is theoretically separate from the financial system, in practice it is not.
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Crypto Crash: What do I mean by that?
Simply said, when there is market tension for whatever cause, investors will tend to be more cautious. Being involved in cryptocurrency is risky, thus it’s not a good idea to do it under pressure. Before all of this, many corporations were making significant investments in the cryptocurrency market; but, following the collapse of Terra (Luna) and the ensuing economic turmoil, they abruptly halted. I’m going to summarize the annual report that the Fed recently released.
Fed annual report
There are 4 categories of economic vulnerability that the Fed pays attention to.
- Excessive borrowing by households and businesses.
- Elevated valuations such as stocks that are trading much higher than what their actual profits justified.
- Excessive leverage in the financial system risk-taking in the form of saying large speculative trades on a video game retailer, and funding risks.
- Bank runs which are when everyone rushes to pull their money out of a financial institution at the same time.
These four economic vulnerabilities are not mutually exclusive quite the contrary they can and often do interact, and therefore have the potential to turn what would otherwise be a small economic disruption into a widespread economic catastrophe.
Dive deep into the report
The Fed’s Financial Stability Report’s first section concludes with the findings of a survey of market participants that most people are concerned about the conflict in Ukraine and China, inflation, a market crash, foreigners selling off US assets, and higher energy prices. However, the second-to-last one caught my attention because I can’t help but believe that it has to do with the seizure of the Russian central bank’s assets in response to its country’s invasion of its neighbor. The yield on the two-year treasury temporarily surpassed the yield on the 10-year bond at the end of March, and the two have been uncomfortably close ever since.
Why this is so important For Crypto?
Because is called a yield curve inversion and it’s seen by many market participants as a sign that a recession is coming that’s because under normal economic conditions interest rates on longer-term debt are higher due to the increased risk and opportunity costs involved. When interest rates on short-term debt are higher something is broken.
Watch Closely For New Cryptocurrency Opportunities
You should keep an eye out for new opportunities to invest in projects that might be the next big thing as soon as the crypto market starts to show signs of revival. Make sure the projects you are funding have a solid foundation and a practical growth strategy.
Keep a watch out for local regulatory changes. Make sure to conduct your research and learn about the options available to you because certain nations have declared it illegal for citizens to invest in particular types of cryptocurrency. Keep up with the most recent news and developments in the cryptocurrency sector by closely following industry leaders and keeping an eye on the headlines.
Conclusion
The bear market will pass, and when it does, those who prepared for it and stayed the course will be in a great position to profit from their crypto investments. While it’s important to stay informed and cautious during the bear market, it’s also important not to let it keep you from investing altogether. You can minimize your risks by diversifying your holdings, keeping your eye out for new opportunities, and HODLing until the market starts recovering.
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