The cryptocurrency market took a significant hit after the sudden collapse of crypto-friendly banks, Silicon Valley Bank (SVB), Silvergate and most recently, Signature.
The Silicon Valley Bank collapse particularly is unprecedented and represents the second-largest bank failure in the history of the United States. It is the most significant bank failure since the infamous financial crisis of 2008. Due to the debacle of these banks, which had exposure to the crypto industry, the market recorded a significant decline in overall value, stablecoin($USDC) depeg, and liquidations.
Although the full extent of the damage done to the industry is yet to be realised as the status of billions of dollars of uninsured deposits is unknown heading into the new week, the failure has increased uncertainty in the short term, with investors closely watching for any signs of the contagion spreading to other regional banks across the United States.
With this crisis, predictions for the near-term price performance of Bitcoin and other leading assets have been largely bearish, and there are indications that market players should expect to record more losses.
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During times of uncertainty and turmoil, it is best to deploy safety techniques to avoid getting caught up in chaos. With this in mind, we have come up with 3 tips you can follow to navigate the murky waters of crypto in these precarious times.
Set a risk management strategy
According to Investopedia:
“In the financial world, risk management is the process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions. Essentially, risk management occurs when an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment, such as a moral hazard, and then takes the appropriate action (or inaction) given the fund’s investment objectives and risk tolerance.”
A risk management strategy is crucial in the crypto space, especially in times like these. This includes setting limits on the amount of money or the maximum percentage of your portfolio you’re willing to invest.
Also, set a stop-loss order. It is an order to automatically sell your investments if the price drops below a certain level, limiting your losses and ensuring you don’t lose too much money. Lastly, set up an alert system. This system informs you of price movements, helping you stay on top of your investments.
Portfolio diversification
The principle of diversification means to spread your investment portfolio across multiple assets to reduce risk. A diversified crypto portfolio contains a mix of distinct digital asset types ($SOL, $ADA, $ETH and others) to limit exposure to any single asset or risk.
The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual position. It is also a way to protect your portfolio from the negative impact of volatility, just like the one currently ongoing in the market.
To reduce your risk in crypto, spread your investments across projects, assets, exchanges, and specifically cryptocurrencies. Also, use diverse investment strategies like long-term, short-term, active, and passive.
All of these will arm you against negative market conditions and avoid overexposure.
Keep tabs on market happenings
Staying abreast of occurrences in the crypto market is vital. It is important to be updated with the latest news and developments, as these can shake up crypto prices.
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Another one, Silicon Valley Bank, bites the dust
For instance, the collapse of Silicon Valley Bank last week sent the price of $USDC below the $1 peg. Traders and investors that are conversant with market trends were able to deploy measures to mitigate risks during that period.
A single update/development can send the crypto market crashing or move in the other direction. By staying informed, investors can better navigate the unpredictable world of crypto.
Conclusion
The full extent of last week’s events has not been fully revealed, but will likely not be like the aftermath of the FTX collapse of November.
However, it is important to stay safe as leading regulators in the United States and the United Kingdom prepare emergency plans to save the tech industry from contagion.
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