The cryptocurrency space is known for its huge volatility, ups and downs. However, the crash in 2022 looks much more severe and unpredictable than previous bear markets. However, there are ways for investors to safeguard and protect their crypto assets despite the turbulent times.
Despite the somewhat hostile environment, cryptocurrency adoption is still on the rise, which indicates that bear times are coming to an end. According to the latest research, about 20% of people in America who have never owned cryptocurrency plan to invest by the end of the year. But why does space collapse when interest is so high?
Why did cryptocurrency crash in 2022?
The underlying processes that determine how a market performs are numerous and often interrelated, leaving analysts with the difficult task of solving the problems that have occurred. However, 2022 is proving to be one of the most challenging years for the cryptocurrency industry yet.
Starting with the Terra LUNA fiasco at the beginning of the year, the fate of stablecoins has been put on the line for the first time. Moreover, in the following months, we saw major corporations and venture capital firms collapse. Wallet provider Celsius filed for bankruptcy, locking up clients’ assets, while hedge fund Three Arrows Capital also defaulted, with its founders in hiding.
Recently, we have seen FTX Central exchange fall apart as it was revealed that the exchange had embezzled clients’ funds for years, and hackers managed to drain their wallets, leaving thousands of users with empty wallets. The combination of these significant events and additional global economic pressure has left the cryptocurrency space at a juncture.
Despite this, the activity remained strong, and traders and cryptocurrency enthusiasts continue to watch their portfolios closely. One of the most important things investors can do during down times is keep track of their portfolios and implement the necessary steps to protect their investments.
Automation can help you limit losses during cryptocurrency crashes
No matter your investment strategy, limiting potential losses is a crucial component, especially during bear markets. With the advancement of trading bots and automation software, there are now many more tools that can help you set up price-targeted trades.
Automating your trading is key to reducing risk, especially since the cryptocurrency market lives non-stop, 365 days a year. Disturbances can occur at any time, which is why using automation mechanisms such as stop-loss limits can help you avoid unnecessary risks. A stop loss limit allows you to set an automatic sell trigger that is activated when a particular asset in your portfolio reaches a specific value that you are not comfortable with.
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Take this hypothetical scenario as an example. Your wallet consists of 32 ETH, which you purchased at $1,000 per token. Since the date of purchase, the valuation of the cryptocurrency has been on the rise, and 1 ETH is currently worth $1,100. Using platforms like the TradeSanta bot, for example, you can set up an automatic sell stop loss that will liquidate your ETH holdings at the price you set. Placing a stop loss at $1050 per token will ensure that you will continue to make profits, and you will not have to think about watching the market non-stop. Your wallet does not depreciate, and the sale of ETH has been automatically triggered before the price of the token drops any further.
Of course, this simply shows what automating a stop loss can do. Products like the TradeSanta trading bot offer more sophisticated tools that can be applied to your trading experience. Most importantly, manage risk with a stop loss, trailing stop loss or get the best entry using MACD, RSI, Bollinger technical indicators and TradingView stop signals. DCA’s strategy involves dividing your reserves into smaller portions and buying in smaller amounts each time the price of an asset falls. And other automated processes can save you a lot of anxiety in these uncertain times.
You can also check out the Cointelegraph Trading101 section to learn more about basic trading principles and tools that you can use to reduce potential risks and losses during a bear market.