The cryptocurrency market this year has been a rollercoaster of volatility, and those who have been paying close attention will still be in a state of shock.
In a dramatic market collapse in June 2018, Bitcoin’s price dropped by over $1,000 in just 24 hours. Responding in kind, Ripple, Ether, EOS and Bitcoin cash followed shortly behind leaving investors gasping for breath. The reason for this and other recent price crashes are not thoroughly understood or immediately apparent, although panic selling probably contributes to the overall situation.
While some investors have lost vast amounts of money this year, there are also some who have learnt to cope with this extreme volatility and have even made money by profiting from the price drops. Is this actually possible, I hear you ask?
Hold On For Dear Life
“Hold” is a buzzword in the world of digital currencies and also the strategy that traders respect the most. Remember, you only make a loss if you actually sell your coins at a price below what you bought them for! Investors should not panic and contribute to the overall crash. Hold on to your currency and do nothing. The secret to this strategy is to hold top digital currencies by market cap, as these are the ones with the strongest foundation and long-term ability to ride the terrifying fluctuations in price levels.
Diversity Is Strength
A diverse portfolio is essential, so find cryptocurrencies that have a solid business model and a firm foundation for the future. There are more than 1000 digital currencies currently listed, so take your pick! Of these, the top nine currencies have a value of $1 billion, but there are more than 300 others with a market cap above $1 million. Spreading your investments gives you a much larger risk allowance, as not all currencies will follow the leaders and collapse. If you can identify quality coins, you should be able to hang on and weather any storm, offset your losses and maybe even make a profit during a crash.
Initial Coin Offerings Rule
Initial Coin Offerings (ICOs) are used for fundraising in the world of cryptocurrencies, and they are extremely popular with startups who use the model to raise seed funding. Authorities are busy establishing regulation and order, and a regulated market offers many investment advantages, particularly during extreme market volatility. The young cryptocurrency market is affected by many external factors and is an extremely high risk. Consider balancing this by putting some of your money into tokens in an ICO, that is either building upon an existing digital currency or leading the way in innovation.
Buying The Dip
Buying the dip is not for the faint-hearted, but the very fact that the market is wildly volatile can be an opportunity for risk takers. In a bull market, using these fluctuations can help investors to bring gains, but it needs to be done with extreme caution. It also requires experience and knowledge about timing the market. Even though the cryptocurrency market will be broadly in either bear or bull mode, there will still be opportunities with certain stronger coins, or even newcomers to the market with a compelling business model. Investors who are always on top of the very latest news can be ready to take advantage of any flash crash.
Sell To Fiat Or Short Your Asset
Selling to fiat is a controversial strategy, but many asset managers are unashamed to do this when there is a market crash. However, if you are experienced, it is a credible way to make some good returns. Shorting your asset is also a tool used by most traders, and if it’s executed correctly, it can offer really huge profits. It involves borrowing the asset from somebody else, then selling it on. You will then repurchase it at a later date and return it to the original person. If the price has dropped, then your profits will be enormous, but the risk is, of course, that the price has risen.
Either of these options requires perfect market timing for exit and re-entry, so be sure to allocate only funds that you can afford to risk, and always stick to your plan irrespective of the market volatility.
Add Crypto Miner To Your CV
While everyone is panicking and running to the crypto exchanges, why not sit back and become a miner? Helping to produce coins or tokens is the process of adding them into the relevant blockchain. These are then available for the various exchanges or Initial Coin Offerings and your digital wallet! In the beginning, only experienced cryptography enthusiasts were miners; however, today cryptocurrencies are popular and have increased dramatically in value. Mining is now considered to be an extremely lucrative business, and many tech-savvy investors are digging down and getting paid for their minted coins!