The past few months have been nothing short of a rollercoaster ride for cryptocurrency investors. Governments across the globe have made moves seeking to either control the crypto market or ban it outright, with China leading the pack of countries that are cracking down on cryptocurrencies.
In mid-September, the Chinese government ordered the shutdown of crypto exchanges ViaBTC, OkCoin, BTCC, and , sending Bitcoin prices tumbling to sub-$3,000 levels and making good on their threat to ban cryptocurrency trade in the country.
This all happened amid the debate within the Bitcoin community about the path to growth and scalability, which had led to a Bitcoin folk earlier in the year. And even though the debate is a healthy attempt at safeguarding the future of the cryptocurrency, some market observers are starting to view the uncertainty around Bitcoin and other cryptocurrencies as indicators of a market bubble and a dark future.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
Either way, there’s definitely cause for concern across the board. Should these markets crash as some analysts predict, there are a handful of ways you can still turn a profit depending on your tolerance for risk.
1. Look for strength in diversity
There are currently over a thousand cryptocurrencies listed on official and unofficial exchanges across the globe. Out of these, the first nine are valued at over $1 billion and over 300 on that list have a total market cap exceeding $1 million. The incredibly high number of cryptocurrencies and the ease associated with creating one, while questionable, give investors a bigger risk allowance since not all digital currencies will go down during a crash.
For instance, while the prices of Ethereum were soaring by 5000% over the first half of 2017, Bitcoin prices kept fluctuating over the same period – partly because of the folk.
Find coins that have the basic characteristics for future success, such as a solid business model and firm foundation. Once you find quality tokens, weather any storm that comes around and you might just be lucky enough to smile after a crash.
2. Consider ICOs
Initial Coin Offerings or ICOs are a fundraising model in the crypto world that are loosely based on traditional IPOs. They’ve become quite popular recently, with hundreds of startups using this model to raise billions in seed funding. ICOs, like other elements of the crypto market, were not regulated, which meant investors could lose their investments without any legal recourse.
However, authorities around the globe are moving to establish some order in the crypto scene, with the SEC in the US being among the first to flex its muscles. A regulated ICO market presents some advantages for investors, especially during a crash.
Instead of putting your money in a crypto market that can be affected by a myriad of external factors, you can buy tokens in an ICO that either promises to build upon a previous currency or one that can only be used in a certain way.
3. Buying the dip
The fact that the crypto market is a volatile one can be a good thing for investors who aren’t afraid of risk. In a bull market, buying the dip during these fluctuations can bring good returns, but only when done carefully and professionally. Crypto investors who always have an ear to the ground can take advantage of a flash crash, especially because most major cryptocurrencies are often characterized by price drops quite often.
For instance, the June 21st Ether flash crash that saw the price of this cryptocurrency drop to $13 before recovering to pre-crash levels of about $300 would have been the perfect opportunity for an attentive investor to make money.
4. Hold On For Dear Life (HODL)
HODL, short for Hold On For Dear Life, is a literal and common strategy that you can use to protect yourself against a crash. HODL simply means buying and holding on to stocks or cryptocurrencies that you think will weather the storm, even with scary fluctuating price levels.
In a crypto market, this strategy has better chances with the top performing cryptocurrencies by market cap, more specifically the top five digital currencies with promising futures.
5. Become a crypto miner
With everyone running to crypto exchanges and ICOs to make money, you can opt to sit back and help build coins and tokens. Cryptocurrency mining is the painstakingly slow process of adding tokens and coins into the blockchain, which can then find their way into exchanges, ICOs, and your digital wallet. Any tech-savvy investor with the right (high-performance) hardware can dig in and get paid a fraction of the coin minted.
The crypto market, just like every other trading market out there, comes with its own set of risks and challenges, even when the market isn’t crashing. So it always pays to do your homework before investing in digital currencies.
Plus, the reality of losing everything in the crypto market is real, so ensure you’re always mentally prepared for that too.
As always this is not formal investment advice and of course caveat emptor!