Every time there is a crash in cryptocurrencies, the alarm bells ring out and panic often ensues. People predict the end, see the bubble popping and sell off for a loss.
However, there is another way to look at it, and that is to see a significant drop as a buying opportunity and a chance to profit.
How to profit
There are a few ways to try and cash in on a sharp fall in price of cryptocurrencies. Some are more effective than others, and some more suitable for different types of crashes or currencies. It is up to the investor to decide.
There are five methods described below that can help turn a sickening crash into a chance to make more money than before.
A lot of these methods are well known, and almost cliched, but the real difficulty is not simply knowing them, it is being brave enough to enact them in the face of a collapsing market.
Buy the dip
With Bitcoin’s path on a constant upward trajectory, buying the dip is one of the easiest ways to make compelling gains. However, it is not always easy to pull off as it requires timing the market.
Yazan Barghouti, project lead at Blockchain company Jibrel Networks, emphasized:
“Buying a dip in a crash can be difficult, because when do you know it has bottomed out?"
Petar Zivkovski, COO of leveraged digital currency platform Whaleclub, also spoke to the caveats surrounding this particular strategy:
"Buying the dip only works in a general bull market. If the global trend reverses, buying the dip is useless."
Pinpoint strong opportunities
While the cryptocurrency markets seem to be intrinsically linked, and will broadly be in a bull or bear mode, there are still opportunities to be made on certain strong coins through the market.
Vinny Lingham, CEO of Civic, suggested that investors "find quality coins with teams you can trust to execute and weather the storm" and then hold.
In trying to identify these opportunities, one must identify coins with a solid foundation and a compelling business model.
A byword when it comes to cryptocurrencies, holding on through the bad times is the most basic and respected strategy. If you do not sell your coins when they are below what they were bought for, you have not made a loss.
This equates to buying digital coins and simply holding onto them through thick and thin. It is one of the most basic strategy for dealing with a crash - do nothing.
Additional advice offered by Zivkovski is to make sure you are holding the top five cryptocurrencies by market cap as they probably have the best foundation and ability to beat the crash.
Selling to fiat
A somewhat controversial strategy, and one that flies in the face of holding is exiting to fiat currencies.
Crypto asset managers are notorious for doing this when there is a crash. However, it is difficult as it again requires timing the market both on exit, and then again on reentrance. Marshall Swatt, founder and CTO of Coinsetter, said:
"Exiting to fiat requires that you be able to time the market, both when you exit and again when you return. 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."
This is a tool used mostly by traders, and it is one that if executed correctly offers huge returns.
A few popular exchanges do offer this as an option, but it takes a lot of skill and experience to get this right. Shorting an asset involves borrowing it from somebody else, selling it, and then buying it back later to return to the person you borrowed from. If the price drops, you’ll make a fortune. If the price rises, you could lose everything.
Know your abilities
The strategy you use should be based on your skill level and your comfort with risk. If you don’t want to take any chance of losing your digital currency, then holding is probably best. If you don’t mind being in fiat for awhile (possibly forever), then you can sell at highs and try to rebuy lower. If you’re a high flying and experienced trading, short selling might work for you. Use whatever strategies you are most comfortable with, and always know your investing goals.
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