Convert Crypto Holdings to StablecoinsThis is the closest thing to fiat that the entire cryptosphere has to offer in terms of stability. Despite the bad press that Tether (USDT) has received over the past few months, USDT and other stablecoins still offer a level of assurance that most cryptos can only aspire to in the current market. [bctt tweet=”Stablecoins represent an instantaneous solution to protect your crypto funds during a market crash” username=”beincrypto”] In addition to keeping your holdings at a steady level, stablecoins also offer a quick and easy way back into the market, should you so desire.
Write Off Crypto Losses Against Your TaxesUnder American law, cryptocurrencies are classified as commodities, which means that all profits made from crypto trading are subject to a capital gains tax. In bearish times like these, any losses you record on your crypto portfolio can be written off against your income tax under IRS regulations. In order to qualify for such a tax refund, it is important that you register the details of every crypto trade you made during the financial year of the IRS form 8949. While this may not always be practical due to the volume of trades you may have executed in the course of the year, you can use one of a growing number of crypto accounting software packages to help you do this. After recording details of all crypto trades on the form and totaling your net losses at the bottom, it is possible to claim up to $3,000 off your income tax for the financial year.
Stop Loss OrdersWhile this is more relevant to traders than regular hodlers, it is still worth mentioning that many exchanges offer users the ability to execute automatic loss-reducing sell orders. How this works is that the user puts in a specific price level that represents the lowest they are willing to accept for their holdings. Once the asset price dips below that level, the holdings are automatically sold, which offers users a measure of protection. For example, if an ETH holder is not willing to accept a price lower than $90 for their holdings, as soon as the ETH price breaches that price floor, the stop loss order automatically triggers a sale, giving the user the fiat or BTC equivalent of their ETH holdings. A major drawback of this approach, however, is the fact that it generally requires user funds to be held in their exchange wallets, which can represent a significant security risk, especially for large holdings.
Go Back to BitcoinIf the stablecoin option does not appeal to you, there is always the option of coming home to the market leader, which is a better option than you might realize. For one thing, crypto market movements largely track bitcoin price movements, which means that if a recovery will start from anywhere, it will likely be bitcoin. During the USDT exodus a few months back, a large number of investors actually converted their holdings into BTC, which is a sign of how well regarded it is as a store of value. Despite its current slump, it has been noted that this is actually by far the smallest of the five major drawdowns recorded in its 10-year history. This could indicate that bitcoin is starting to level off when examined from a wider historical perspective, and that potentially is good news for investors looking for a coin that can hold its value in the future.
Above All, Don’t PanicOne of the easiest ways to lose money in a bear market is to lose your nerve and join the firesale mob. As with conventional asset trading, crypto holding requires a measure of strategy. First of all, it is always helpful to look at your holdings from the wider angle of an extended time period in order to determine exactly how badly they are performing and whether you should even sell in the first place. Take the current market situation for example, with cryptos reporting anything from 70 percent to 90 percent drawdowns from their all-time high valuations. It might be easy to see it as an apocalypse and a reason to hit the ‘sell’ button. However, XRP –despite the 92 percent drawdown from January – is still up on its valuation from 12 months ago. Many bitcoin investors only started to sell a portion of their holdings after it broke $4,000 – despite falling from $20,000 to around $6,000 where it hovered for much of 2018. Some investors use one year as their reference period while others use three years or even five years. The takeaway is that, with the exception of wide-eyed teenagers who expect to hit Lambo Land overnight, no crypto investor should look at their portfolio through the lens of market panic. At best, panic will rob you of an opportunity to keep hold of a performing asset and at worst it will make you contribute to firesale conditions that ultimately help only the wisest investors. How do you minimize your losses during market crashes? Let us know in the comments below!
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