The alarm bells ring out and panic often ensues every time there is a crash in cryptocurrencies.
A range of analysts have recently weighed in on whether cryptocurrencies are in a bubble, and there is certainly cause for concern. According to CoinMarketCap (https://coinmarketcap.com/), the total market capitalization (market cap) of these digital assets has surged from less than $18 billion to nearly $180 billion this year.
However, these currencies have been suffering some weakness lately. Many of them have dropped significantly from their peaks.
However, there is another way to look at this problem. You can see a significant drop as a buying opportunity and a chance to profit.
How to Profit from a Crypto Markets Crash
There are several ways that investors can profit on a sharp fall in price (https://cointelegraph.com/news/price-of-bitcoin-cash-plummets-as-exchanges-open-deposits) of cryptocurrencies. Some are more effective than others. Some are more suitable for different types of crashes or currencies. As for which approaches are best, it is up to the investor to decide. This choice will depend largely on where they believe the markets will go next, as well as their risk tolerance.
This article reviews five specific methods that investors can use to help turn a sickening crash into a chance to make more money than before.
A lot of these methods are well known, and almost clichéd. However, the real difficulty is not simply knowing them, it is being brave enough to enact them in the face of a collapsing market.
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Buy the dip
Buying the dip is one of the easiest ways to make compelling gains. However, this requires timing the market, so it is not always easy to pull off. Using this strategy successfully requires an investor to time the market. This is something that many market experts have described as very challenging.
Yazan Barghouti, project lead at a Blockchain company Jibrel Networks (https://jibrel.network/), noted that after peaking in 2013, Bitcoin prices gradually lost value for about two years.
“Buying a dip in a crash can be difficult,” he emphasized, “because when do you know it has bottomed out?”
Petar Zivkovski, COO of leveraged digital currency platform Whaleclub (https://whaleclub.co/), warned traders against relying on the assumption that Bitcoin will always rise in value.
He also spoke to the caveats surrounding this particular strategy (https://www.forbes.com/sites/cbovaird/2017/09/13/cryptocurrency-5-ways-to-profit-from-a-market-crash/#238cf6ea494b):
“Buying the dip only works in a general bull market. Buying the dip is useless if the global trend reverses.”
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Pinpoint strong opportunities
The cryptocurrency markets seem to be intrinsically linked, and will broadly be in a bull or bear mode. However, there are still opportunities to be made on certain strong coins through the market.
Investors should keep in mind that some of these digital assets could hold up very well even if the broader cryptocurrency market crashes.
“Just like the NASDAQ bubble, there will be companies and tokens that go on to be very successful, perhaps a future Amazon,” stated Marshall Swatt, founder and CTO of Coinsetter, which was acquired by Kraken.
“Investors should find quality coins with teams you can trust to execute and weather the storm and then hold, ” suggested Vinny Lingham (https://cointelegraph.com/news/vinny-lingham-on-the-perfect-ico-eat-your-own-dogfood), CEO of Civic.
Swatt offered specific suggestions for evaluating tokens, advising that investors identify coins with a solid foundation and a compelling business model.
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Hodl (Hold On For Dear Life)
One way to weather a crash in digital currencies is to Hold on for Dear Life. This is the most basic and respected strategy that many in the industry refer to simply as HODL.
You have not made a loss if you do not sell your coins when they are below what they were bought for.
This equates to buying digital coins and simply holding onto them for a substantial period of time, regardless of how much the digital assets fluctuate in value. „Do nothing“is one of the most basic strategies for dealing with a crash.
Barghuthi described this approach as a “classic.” He stated that “plenty of investors will probably use” it if the market crashes.
Additional advice offered by Zivkovski is to make sure you are holding the top five cryptocurrencies by market cap. The reason for that is they probably have the best foundation and ability to beat the crash.
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Selling to fiat currencies
Exiting to fiat currencies is a somewhat controversial strategy, and one that flies in the face of holding.
Crypto asset managers are notorious for doing this when there is a crash, but it is difficult because it again requires timing the market both on exit, and then again on reentrance.
Tim Enneking, the firm’s managing director, said that Crypto Asset Management frequently uses this approach when these digital assets decline.
“Exiting to fiat requires that you be able to time the market, both when you exit and again when you return, “said Marshall Swatt, founder and CTO of Coinsetter (https://www.crunchbase.com/organization/coinsetter). “The smartest strategy is to allocate money you can afford to put at risk, and then stick with your plan regardless of the variations in the market.”
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Shorting Bitcoin
This is a tool used mostly by traders, and it is one that offers huge returns if done correctly.
This opportunity is offered by many exchanges, including Kraken, Poloniex, and Bitfinex. However, it takes a lot of skill and experience to get this right.
Shorting is a strategy for more sophisticated investor. This approach is very risky because it involves borrowing an asset from somebody else, selling it, and then purchasing it back later to return to the person you borrowed from. You’ll make a fortune if the price drops. On the other hand, you could lose everything if the price rises.
Summary
Investors should be sure to perform their due diligence before using any strategy in an effort to profit from a market crash. It is very important to know your abilities and that the strategy you use is based on your skill level and your comfort with risk. Holding is probably best if you don’t want to take any chance of losing your digital currency. Also, you can sell at highs and try to rebuy lower if you don’t mind being in fiat for awhile (possibly forever). Short selling might work for you if you’re a high flying and experienced trading. Use whatever strategies you are most comfortable with. And always know your investing goals.
