The cryptocurrency market is seeing big dips in prices again. China is extending its crackdown on Bitcoin mining, and so "The Big Short" hedge fund manager Michael Burry is anticipating a "mother of all crashes."
What does this mean for regular crypto traders and investors?
Why is There a Bitcoin, Dogecoin, and Ethereum Price Crash?
The crypto market was under heavy selling pressure on Monday, Market Watch said.
According to Cnet, the Dogecoin price went down more than 30 percent now at 17.6 cents, quite a deep plunge from the 70 cents high it saw back in April. Bitcoin fell more than 10 percent and Ethereum has plunged 15 percent. Because of ETH's fall, thousands of altcoins including Etherium Max, have lost a chunk of their value since they are built off of Ethereum's blockchain. Overall, the market is down 12 percent.
China is now being more stringent with its laws. Key banks and financial services companies attended a meeting by China's central bank to talk about the crackdown. Regional authorities have also ordered the closure of 26 mining operations in Sichuan a few days ago.
The Chinese central bank said that virtual currency transactions and speculative activity have disrupted the normal order of both the economy and the financial system, increasing the risks of illegal cross-border transfers of assets and illegal activities like money laundering.
Expecting a "Mother of All Crashes"
In a since-deleted tweet, Michael Burry, the hedge fund manager who famously shorted the 2007 housing and mortgage market, warned hyped investors of the meme stocks and cryptocurrency.
It might be an exaggeration calling it a "mother of all crashes," as the market isn't contending with a severe downturn, Market Watch said, but the momentum for the cryptocurrencies is undoubtedly downbeat.
The crypto market has proven to be untethered to technical fundamental factors used for more traditional stock trading, as it is driven primarily by social media trends. Volatile in nature, it has seen its fair share of epic highs and painful crashes in its brief history.
It is the perfect place for a bubble to inflate in such a ridiculous extreme that when the bubble bursts, it could be very catastrophic.
Not to mention cryptocurrency wallets aren't FDIC insured and, really, no concrete protection system is in place for traders' gains that are kept in those wallets.
Market Watch reported that digital assets investment products overall are seeing a lot of outflows, the longest bear run or decline since February 2018. Bitcoin is seeing the most selling.
Investing in the Bitcoin Crash
Forbes Senior Contributor Clem Chambers is predicting BTC to go under $20,000 and ETH to go below $1,000. He likens trading to gambling, especially when considering the volatility of crypto. Investing, he sees as more structured, with it clear strategies.
If you believe that cryptocurrency has a great future as Chambers does, you don't want to be trading crypto. You have to enter the market as na investor.
He suggested to first stay away until the crash is over. Acquire Bitcoin until the next halving or block subsidy cut and the consequent vertical rally or hike in price.
Keep in mind the dollar cost average. Buying your Bitcoin in small bits regularly, not caring about the current price, and just accumulating more and more BTC over time will actually pay up in the long term. Chambers admitted it's a dumb strategy on paper, but it actually works well if the market you are dollar-cost averaging is going up in the long term and you believe the crypto market is going up.
Lastly, max out the crypto cycle, Chambers added. Crypto winter is when you can acquire Bitcoin with a bit of any major cryptocurrency at really cheap prices. Watch out for new developments like decentralized finance (DeFi) and non-fungible tokens (NFTs).
He also advised to buy pinches of the initial pioneers but don't bother with hyped-up crypto segments that aren't discussed at conferences or funded by silicon valley VC giants.
Once you've done that, sell down your big wins to jump into second-tier currencies that haven't boomed yet.
Then sell out entirely when the new "champions" are trying to take Bitcoin to $1,000,000 and all that noise explodes. You don't want to get caught when everyone's trying to sell their tokens and end up crushed by the epic fall. As Chambers puti it, "better to cry all the way to the bank because you missed the top, than be crushed on the other side of the bubble."
The nature of trading and investing is always going to entail risks. In a market as volatile as the cryptocurrency market, you must be diligent in managing your risks and make calculated plays.