Key Insights

  • When the market turns red and prices start to tumble, even experienced investors can feel the heat.

  • Crypto is still relatively a young asset class. It is highly speculative and easily controlled by factors like inflation, interest rates or global regulation.

  • To survive the market's dips, remember to use stop-loss orders and never panic.

  • Avoid leverage for highly volatile markets (like memecoins), and if you must use leverage, remember to keep it low.

  • Finally, diversify your portfolio and focus only on strong projects for the long term.

Buying or selling crypto can be very exciting sometimes. However, when the market turns red and prices start to tumble, even experienced investors can feel the heat.

In these moments, it is easy to let fear take over.

However, panicking often leads to poorer decisions, which lead to more losses as the cycle repeats.

If you're wondering how to protect your investments during a crypto crash, then you're not alone.

Here’s a guide to how to manage risk, avoid unnecessary loses and remain level-headed regardless of the crypto market’s outlook over the long term.

Why Do Crypto Dips Happen?

Before jumping straight into the solutions, it sometimes helps to understand the problem itself.

Why do crypto market dips happen?

To start with, crypto is still relatively a young asset class. This means that it is highly speculative and easily controlled by factors like inflation, interest rates or global regulations.

Crypto is unlike traditional markets in that it trades 24/7. This constant activity can lead to sudden price swings, which rarely occur in the latter market.

While some crashes are caused by actual events like regulatory crackdowns, others are healthy corrections after periods of massive growth.

Here are some ways to stay afloat when these crashes happen.

1. Don’t Panic Sell 

As established earlier, the first rule of surviving a crypto dip is simple: Don’t panic, because selling in fear only locks in your losses.

It is normal to feel uneasy when a certain asset drops by 20% overnight. 

However, from a historical perspective, Bitcoin and strong altcoins have always bounced back at some point.

Sometimes, these bounce-backs come with massive dips, and if you sell during a dip, you miss out on any possible recoveries.

Try to revisit the reasons why you invested in the first place, or zoom out on the price charts to see what the long-term trend looks like.

Remind yourself that dips are normal and even healthy in any financial market.

2. Use Stop-Loss Orders 

You can't control the market. However, you can control your reactions to it.

Consider using stop-loss orders, which automatically sell your crypto when it drops to a certain price.

This tool is especially useful if you’re busy or are emotionally affected by the volatility.

For example, if you bought Bitcoin at $85,000, setting a stop-loss at $80,000 would automatically sell your position when prices crash to this level to prevent deeper loss. 

You might miss out on the resulting pump, but at least you get to protect your capital.

In volatile markets, avoid placing stop-losses too close to your entry point.

You can also combine stop losses with technical analysis to know exactly where to place your orders.

3. Diversify Your Portfolio 

One major rule in the crypto industry is to never put all your eggs in one basket.

Instead of this, consider spreading your investments across various sectors and coin types.

A diversified portfolio helps to cushion the blow in the event that one asset crashes.

While Bitcoin might be falling, stablecoins or even other altcoins might be faring better.

To diversify properly, ensure to hold a mix of large-cap coins (BTC, ETH) and promising altcoins.

Remember to keep a certain portion of your portfolio in stablecoins like USDT or USDC to reduce your exposure to further dips.

Try exploring different blockchain ecosystems like Ethereum or Solana to avoid being overexposed to one network's issues.

4. Avoid High Leverage Trading

Using leverage in trading can be tempting when you want to increase your profits. However, leverage is a double-edged sword that can easily wipe out its wielder.

Using 10x or 20x leverage in a volatile market is like walking a tightrope during an earthquake. 

Even small drops in price can trigger liquidations and destroy an entire position in minutes.

As a safer approach, use low leverage (2x to 5x) if you must trade with borrowed funds.

Ensure you always set stop-losses when using leverage, and never set leverage on memecoins.

If you aren’t 100% confident in your decisions, it is better to stay away from leverage altogether.


5. Focus on Strong Projects

Not all coins are created equal, and some are likely to be stronger than others in terms of fundamentals (or even technicals).

When the market crashes, weak projects tend to fall first and may never recover.

When the market is crashing, it is sensible to stick with fundamentally strong assets.

Choose cryptos with solid use cases, active development, real-world adoption, and large communities. 

Also, always trade on reliable exchanges with large liquidity to protect yourself from market volatility. 

Remember To Play the Long Game

Crashes are part of the crypto experience, and it helps to remember this.

Every long-term investor has lived through at least one brutal market dip. Many of these investors would have even been wiped out at one point or another.

However, those who stick around are the ones who come out stronger.

When prices fall, it is easy to panic. However, it is also the right time for smart investors to plant their feet and wait for the next wave. 

Patience is key in the crypto industry, and anyone can survive the storm with the right approach.