I know, cats! Hard to believe given that the fiat valuation of 1 Bitcoin has been on an absolute monster run since the covid crash in March 2020! In the last 12 months, it seems that BTC has really only known one direction – up! However, if you only joined in the Bitcoin and crypto rocket ride over the last 12 months then expect to see 30% corrections to happen in the blink of an eye. A correction is when the price drops 10% or more since the peak over a certain period of time – it just happens a lot quicker in crypto! This latest 20% drop (23rd Feb 2021) is allegedly caused by a large BTC mining farm called F2Pool dumping thousands of BTC on the market.
So how do you predict these corrections/crashes?
Random Events
Sometimes corrections can be very difficult to predict, particularly if some one just decides to dump everything all at once and wipe everything out – this is where you really need to follow various live updates such as Whalealert, willywoo, cryptosrus and other blockchain analysts who monitor movements of large amounts of crypto in the market/large accounts. This will either give you a slightly advanced notice to prepare yourself for what’s about to come or will help explain why the sudden crashes occur so you don’t get FUDded out of your position (Fear, Uncertainty, Doubt)
Chart Analysis
However, it can be possible to have an idea of where the price will fall to at least. Especially if you know how to do technical analysis as you can look for various “support levels” which is where the price gets “tested” at a few times before a “breakout” occurs. What the hell does that mean? I guess I’ve picked up the lingo over the last 3 years or so and chucked the words together in a sentence to make it look like I know what I’m talking about!
Anyway, you start to see patterns in the charts if you zoom out to look the price action (with the red and green candles on) at 1-6 months prior to today and it can give you a bit of information of where the price of Bitcoin would fall to when a correction happens. When the correction happens is just impossible to predict and you shouldn’t really believe anyone who claims to know – I certainly wouldn’t put any money into crypto directly based on “advice” I read from someone I’ve never met and you shouldn’t either!
General Sentiment
Stepping out of the charts and in to more human behavioural stuff, you can often tell something “correctiony” is on the horizon if you sense hysteria or euphoria online or even in the conversations with your friends. Changing profiles to laser eyes, the moon memes, hilarious gifs, parodies, anecdotes and all sorts of trending hashtags reflecting the rapid increase in price are all signs to look out for and be aware that a correction is never far away.
As much as I’d love for BTC to always go up, I have learned from my experience of watching the value of my portfolio evaporate on paper from December 2017 to December 2018 as I got caught up in the euphoria in that bull cycle and felt the mighty correction that a lot of us did! It was a very strong lesson!
Riding The Correction
So, how do you “ride a correction”? Well, a great first tactic is do not to invest more than you can afford to lose in the first place. If you’ve mastered this tactic then you can probably feel quite relaxed about the whole thing! However, dollar cost averaging is a great way to mitigate any emotions that you will experience with a sudden price drop – just stick to your plan and you will pick up more sats on the cheap. Another strategy folks use is to keep some spare cash/fiat behind in case of a correction – some actually plan for this and see the drop in price as an opportunity to pick up more of their favourite tokens which seems counterintuitive but is actually the way to do it. You know, “buy low, sell high”.
If the volatility is something that puts you off buying BTC, the “safer” option is to just buy stable coins, whose prices are designed to be stable and pegged to fiat currency. Then you can put your stable coins into a lending platform like Celsius, get your 12% interest and just chill – yes that’s a referral link – info on that below!
The other option? You can always just HODL (as in, hold but spelt incorrectly) where you… well… do nothing with your crypto! Just hold it in some cold storage, switch off your laptop and go do something else for the next month(s)!
What’s your approach to corrections – panic stations or opportunity to buy more? Do you have other indicators you use that help keep your emotions in check during a correction? Let me know in the comments below!
Take care
Nicky
Celsius Referral Link
Earn interest on your stable coins – deposit $200 in your first transaction and we both get $30 in BTC, which will start earning compound interest too.
