Cryptocurrency is famous for its volatile nature.
For instance, Bitcoin, best-known crypto giant hit its all-time high price in December last year. However, only a couple of months later, Bitcoin’s prices plummeted significantly. And just a quick reminder, we are talking about the world’s first ever cryptocurrency here. There are thousands of other such coins that teeter on the verge of volatility every second.
This will give you an idea of how fickle the crypto market is. When investors put their money in cryptocurrencies, they expose themselves to considerable risk. This is a bet almost lost, unless you are extremely lucky.
Bear crypto market
For crypto investors, 2018 was the year of bear markets. There are many reasons for such a harsh market situation. One of these reasons is the scammy ICOs (Initial Coin Offerings). Ever since their advent, people with business ideas have been very fond of ICOs. They are the easiest way to raise funds for businesses/startups.
With no regulations in place, it is challenging to make sure that such ICOs don’t end up in scams. In 2018, thousands of fraudulent ICO activities took place. And surprisingly, most of them ended up scamming their investors for their money. Furthermore, this led these investors to dump their tokens/coins. It happened on such a major scale that the whole crypto market came crashing down.
What to do in a crashing crypto market?
Now, we understand that crypto space is pretty volatile. Bear markets can strike it any time. It requires investors to be aware of this and create strategies. A smart investor should know what to do when the crypto market falls.
Here are five ways you can ensure that you don’t lose your money in such a market. Let’s take a closer look.
Buying the Dip
One way to profit in a plummeting cryptocurrency market is buying the dip. Doing so can generate compelling investment returns. But there is a catch. Buying the dip is quite the challenge. To successfully pull it off, an investor must create a reliable and promising strategy. On top of that, this strategy requires one to smart-time the market. If we ask cryptocurrency experts, timing the market is the trickiest part. Let’s take Yazan Barghuthi’s word for it. He is a project lead at Jibrel Networks, a blockchain company. According to Yazan, buying the dip in a bear market is difficult because one can not know when it has bottomed out.
That makes absolute sense. Take Bitcoin for instance. After peaking in 2013, it kept gradually losing its value for around two years.
According to another expert, Petar Zivkovski, buying the dip works great in a bull/thriving crypto market. Doing so in a crash market is pointless, if the trend a coin has been following reverses.
Therefore, buying the dip on any random assumption may backfire. It is crucial to make a well-timed market strategy.
Pinpointing Opportunity in Quality Coins
There are always opportunities, even in bear markets. Investors should bear in mind that there are coins that might hold strongly, regardless of a poor cryptocurrency market situation. It has happened it the past and it seems quite probable now and in the future. Take the example of the NASDAQ bubble.
There will always be companies that will weather the storm and emerge strong like E-commerce giant Amazon. Therefore, in a poor market, investors should be on the lookout for some quiet coins. They should decide the quality of such tokens/coins on the basis of their trust in the project teams. Good project teams are most likely to execute the project vision with more certainty.
Furthermore, they can base their decision on the strength of a business model and its foundation.
HOLDing in the Cryptocurrency Space
In the crypto space, HODL is a pretty popular term. It is an abbreviation for “Hold On for Dear Life.” In a crash market, when nothing seems to work, it is the easiest thing to do. In fact, most crypto investors do this. HODLing refers to buying crypto coins and holding them in a wallet for a period of time, irrespective of how the market fluctuates. There is little doubt that the strategy of HODLing is quite viable. But experts have advice for cryptocurrency investors. According to them, if investors choose to HODL, they should choose from the top five coins on the basis of market cap.
Flocking to FIAT
It is another way to survive a bear market. An investor can exit to FIAT currencies in a crash market and save their investment.
Exiting to FIAT is a popular approach that most investors take when their coins’ value decline. Again, it is a challenge in itself. It requires an investor to time the market perfectly and determine exactly when to exit and when to return. Here is the smartest way to pull it off. An investor should allocate the investment they can afford to risk and stick to it, no matter how the market varies.
The Short Strategy
Many cryptocurrency exchanges offer the opportunity to short Bitcoin.
Shorting or short-selling is an investment strategy. It helps investors benefit from the decline in the prices of blockchain-based assets.
If a trader can do it properly, they can potentially generate huge returns. Again, it is a really risky approach. Even experts recommend it to only very advanced and sophisticated traders. Therefore, before taking this approach, investors should certainly do their due diligence.
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