In the face of the drastic fluctuations in the cryptocurrency market, investors need to remain calm and adopt rational strategies. The following are step-by-step response suggestions:
Step 1: Control your emotions and avoid panic
1. Suspend trading decision
When the market crashes, adrenaline surges, and it is easy to make irrational operations (such as selling at a loss or impulsive bargain hunting). Give yourself a 24-48 hour cooling-off period and avoid operations in extreme market conditions.
2. Review historical data
Check the recovery cycles of mainstream currencies such as Bitcoin and Ethereum after each crash (for example, the new high was reached 6 months after the "COVID flash crash" in March 2020) to establish an understanding of market cycles.
### Step 2: Position and risk diagnosis
3. Emergency risk checklist
- Has the leverage position reached the liquidation line?
→ If the leverage is more than 5 times and the margin ratio is less than 50%, priority is given to reducing positions or replenishing margin
- Does the investment account for more than 30% of total assets?
→ If exceeded, a phased exit plan should be formulated to reduce risk exposure
- Are there any high-risk meme coins or small-cap projects in your holdings?
→ Prioritize clearing projects with poor liquidity (24-hour trading volume < $1 million), anonymous teams, and no real use cases
4. Cash flow stress test
Assuming the price of the currency continues to fall by 50%, calculate:
- Will the collateralized loan positions be liquidated?
- Will the living reserve fund be affected?
→ If there is risk, immediately reduce the investment principal ratio to an acceptable level
### Step 3: Market Intelligence Analysis
5. Crash Attribution Analysis Matrix
| Type of trigger | Judgment indicator | Response priority |
|---|---|--|
| Macro factors (such as the plunge of US stocks and the increase of US interest rates) | Check the 10-year US Treasury yield and VIX panic index | ★★★ |
| Regulatory events (a country’s ban, an exchange being investigated) | Track authoritative sources such as Coindesk and The Block | ★★★★ |
| On-chain anomalies (whale transfers, DeFi liquidation wave) | Use Nansen and Glassnode to monitor on-chain data | ★★ |
| Project fundamentals deteriorate (such as fatal vulnerabilities in the L1 public chain) | Check GitHub submission records and developer community activity | ★★★★★ |
6. Key indicators of on-chain data
- Net inflows to exchanges (sudden increases indicate selling pressure)
- Stablecoin market value changes (USDT issuance = potential buying power)
- MVRV Z-Score (below -0.5, entering the historical bottom range)
### Step 4: Develop a response strategy
7. Operational Guidelines for Different Position Structures
| Position Type | Short-term Strategy | Mid-term Adjustment |
|---|---|--|
| Spot heavy positions in mainstream currencies | Holding + grid trading (set 5%-10% interval) | Rebound to 200-day moving average and reduce positions by 20% |
| Long contract | Stop loss set at -5% of previous low | Switch to spot after volatility drops |
| Fixed investment account | Double the fixed investment amount (need to reserve 2 years of ammunition) | Recalculate the fixed investment cost baseline |
8. Fund rebalancing model
Assuming the total position is $100,000:
- Immediately transfer 10% to USDC-pegged investment (such as Coinbase 5% APY)
- 20% allocation to Bitcoin Fear Index (trigger buy when Fear Greed Index <20)
- The remaining 70% will be executed according to the original strategy, but a hard stop loss line will be set (if BTC falls below $30k, the holding will be reduced by 50%)
### Step 5: Build a defense system
9. Security Audit Checklist
- Exchange accounts: Enable Whitelist, 2FA (disable SMS verification)
- Cold wallet: confirm the storage location of the mnemonic steel plate
- DeFi positions: Revoke idle contract authorization (using revoke.cash tool)
10. Stress Scenario Simulation
Prepare contingency plans based on three scenarios:
- Scenario A: Recover 50% of the decline within 3 days → Take profits in batches at the 0.618 Fibonacci level
- Scenario B: Sideways for 3 months → Start option hedging (buy straddle)
- Scenario C: Continue to drop by 70% → Trigger the circuit breaker mechanism (keep 10% of the base position and transfer the rest)
### Long-term perspective
11. Bull-Bear Cycle Positioning Tool
Using the Pi Cycle Top indicator (111-day MA/350-day MA ratio):
- Ratio>1.6 → High risk range
- Ratio < 0.8 → Historical bottom area
The current data needs to be analyzed in conjunction with the specific time point, but this tool can help determine the medium- and long-term position.
12. Infrastructure Investment Act
Focus after the plunge:
- Public chains with growing developer activity (such as daily Git commits)
- L2 solution to keep TVL stable
- An institutional custody platform with significant compliance progress
Finally, a reminder: The 24/7 operation of the cryptocurrency market will accelerate the transmission of emotions. It is recommended to limit the number of market checks to no more than 3 times a day to avoid high-frequency trading. Historical data shows that participants who maintain investment discipline during a sharp drop have an 83% probability of achieving positive returns in subsequent cycles.
