We’ve all experienced it: you finally make the decision to invest in a crypto token, only to see its price plummet shortly afterward. So, what is the best course of action in such a situation?

Assessing The Situation: Local Peaks Versus All-Time Highs

First, determine whether you have entered the market at a local peak or an all-time high (ATH). A local peak signifies buying at the highest point within recent weeks, while an all-time high indicates purchasing at the highest price ever recorded.

If you have invested in major cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH) at a local peak, it is advisable to just hold onto your investment despite the initial apprehension. Though it may be nerve-wracking for a while, historical data suggests a strong likelihood of recovery will be in your favor.

For those who find themselves buying at an all-time high, the holding strategy still applies, but the waiting game could extend to the next market cycle, which might be up to three years away.

Minor Coins, Major Risks: Understanding Recovery Odds

Conversely, if your investment involves minor cryptocurrencies, the prospects of recovery are considerably diminished. Certain coins such as EOS, IOTA, XMR, and NEO, which once held positions in the top 25 in terms of market capitalization, have failed to reclaim their all-time highs even after six years of waiting.

In such cases, if the purchase was made at a local peak, it is prudent to consider selling 50% of the investment to mitigate risk. If it is an all-time high scenario, selling up to 90% might be the wisest choice.

Bottomline

Some investors may view market downturns as opportunities to increase their holdings, but this approach necessitates careful consideration and a deeper understanding of the market dynamics.

In essence, the level of risk you assume should directly correlate with (1) your confidence in your research and (2) the amount of capital you can afford to lose if your assessment is incorrect.