Investors are being advised to remain calm with their crypto and act with caution as inflation rates rise to 10.4% in the UK. Inflation in the UK has risen 0.3% since January as a result of the hike in food, clothing, hospitality prices and several other factors.
The experts at the crypto trading guide, Trading Browser, have provided investors with some insight into what the rising inflation rates could mean for their crypto portfolios and future investments.
Why do crashes happen?
Crypto crashes have mainly to do with insufficient liquidity from coins on cryptocurrency exchanges during larger sell-off periods. Once the price starts to fall, the lack of buying support amplifies the fall. Since there are no buy orders to absorb the sell orders, the coins will free-fall until the bulk of the sellers has sold, causing a crash.
Try not to panic
Turbulence in the crypto market can lead a lot of people to panic and sell their coins. This action can cause values to drop heavily which causes a conundrum for many investors.
Investors can either decide to sell more or buy into the dip and reap the rewards in the future. It’s best to consider the options before trading emotionally. Think about whether the personal crypto journey is for the long-term or the short-term, and access any decisions accordingly.
Cryptos as commodities
Just like precious metals, Bitcoin and some other cryptos can be viewed as commodities. The price of these particular coins is driven by supply and demand. This is useful to know when analysing the market when supply is low, demand is high — this may appear to be common knowledge but it can often be forgotten.
As a general rule, during times of uncertainty in the market investors seek out security in order to protect their assets. It’s important to remember this because people are likely to pull money out of cryptocurrency or sell up completely, which can in turn drive the value of the cryptocurrency down. Cryptocurrency doesn’t yet have a long-standing history alongside inflation.
Staying on top of the general news as well as crypto news is the key to helping investors make more informed decisions about their crypto. Cryptocurrency doesn’t yet have a long-standing history alongside inflation, so many people can become worried about losing money during these times. Seeking security in more stable investments like diversified index funds might be advisable if this worry is consistent.
A spokesperson for Trading Browser said: “When there are shifts in the economy and government policy, this could have an effect on investments and holdings.
“The positive to these inflationary changes is that cryptocurrencies are not actual currency and therefore it doesn’t respond to pressures in the same way.
“But this also means the crypto market can be very unpredictable and due to it being relatively new in comparison to inflation history, it’s hard to say what might happen next.
“In general commodities like gold, raw materials and agricultural products can be a primary driver for inflation. Especially in the UK right now, the rise in costs can scare investors and cause market fluctuation.
“However, during these turbulent times, we urge investors to remain calm and make informed decisions away from the heat of emotion.
“Ultimately there is no real way to predict the market or economic events for that matter. It’s all about gathering as much information as possible to try and make informed decisions to protect you and your crypto.”