17 September 2021
Cryptocurrency has gained significant popularity in recent years and has sparked alot of buzz, particularly in the Financial world. According to CoinMarketCap, the global total market cap of these digital assets stands at $1.55T. As lucrative as the market looks, the alarm bells ring with concern when the market drops significantly from its peaks. Over the course of 2021, the digital currency has been on a roller coaster ride, reaching an all-time high before crashing again. For instance, the price of Bitcoin reached a new all-time high of $42,000 in the first week of 2021. Whereas on January 11th, Bitcoin's value dropped by more than 20%; meanwhile, the value of certain other Cryptocurrencies plummeted even more.
The Cryptocurrency market comes with a packaged deal of volatility and high-risk-high-returns trading. The fluctuation can act as a boon of profiting while the other side calls for severe falls. A market crash can happen for many reasons, such as demand and supply, company announcements, regulatory changes, and so on. It is even said that when the price of an asset rises rapidly, a crash is more likely to occur. At the very least, there will be a correction when the price returns to a more "normal" level. However, this results in fear and anxiety for Crypto traders and investors, leading to foreseeing the end of profit-making, realising the bubble burst, and finally selling at a loss.
To stay afloat in this ever-changing market, you clearly need to know the momentous steps to invest in Cryptocurrency. Thus, there are several ways for investors to deal and profit from the crypto market crash. But before implementing any strategy, it is crucial to conduct due diligence since some methods are more effective than others, and some are more suited to specific sorts of crashes or digital currencies than others.
In this blog, we have outlined 6 Strategies To Profit From A Crypto Market Crash
1. Identify promising Opportunities.
While the Cryptocurrency market appears to be inextricably linked and will generally be bullish or bearish, there are still opportunities to profit from specific strong currencies across the market that can hold up pretty well.
Vinny Lingham, the CEO of Civic, suggests to, “find quality coins with teams you can trust to execute and weather the storm” and the hold. Hence, to find these prospects, you must look for coins with a strong base and a viable business model.
Also Read, Bitcoin Crash vs. Correction
2. Buy the Dip
With Cryptocurrency prices trending upward, buying the dip is one of the simplest methods to generate substantial gains. It is, however, not always easy to pull off because it necessitates market timing. As Yazan Barghutti, the project lead at Jibrel Networks, says, “Buying a dip in a crash can be difficult, because when do you know it has bottomed out?”
To use this approach successfully, the investor must be able to time the market, which several market experts have regarded as extremely difficult. So instead of waiting on the exact bottom dip, set a goal and buy it when you have the chance before it’s too late. As Peter Zivkovski, the COO of Whaleclub said, “Buying the dip only works in a general bull market. If the global trend reverses, buying the dip is useless.”
HODL is a very common practice, but the most fundamental and appreciated strategy to carry out through tough times. It refers to holding onto your Cryptocurrency rather than impulsively selling it regardless of the market fluctuation. Basically, doing nothing is one of the simplest ways to deal with a crash. The concept suggests that you have not made a loss if you do not sell your coins for less than what you paid for them.
Zivkovski also recommends holding the top five cryptocurrencies by market cap, as they are likely to have the finest foundation and the ability to weather the fall.
4. Selling to Fiat Currency
Exiting to fiat currencies is a contentious approach that contradicts the grain of holding, as we mentioned earlier. During a crash, Crypto asset managers are infamous for following this method. It is, nevertheless, tricky because it entails timing the market on both exit and reentrance.
Coinsetter's founder and CTO, Marshall Swatt, stated, “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.”
Also Read, All You Need To Know About HODL
5. Short an Asset
This is a technique that is mostly used by traders, and it can yield big profits when used wisely. Shorting an asset involves borrowing the asset from someone, selling it, and then repurchasing it again later to return it to the person you borrowed from. The trick here is that you may make a fortune if the price drops, but you also may lose everything if the price rises.
6. Other Key Factors
Apart from the aforementioned methods, it is essential to follow these core mantras:
- You must follow the basic steps, such as conducting thorough research, setting a goal, planning and strategizing, understanding risk tolerance, and having entry and exit strategies.
- Always diversify your Cryptocurrency portfolio.
- Do not invest or trade based on hype and FOMO. Rather, first-hand research helps big time, so you must always stay updated and informed.
- If you are new to the industry, then start small rather than going all in.
- Don’t let your emotions overwhelm you, stay calm and play safe.
Your method should be defined by your experience, skill, and risk tolerance. As a result, it is crucial that you use whichever strategies you're most comfortable with and keep your investment objectives in mind at all times. Remember the golden investment rule, “Invest what you can afford to lose.”
Disclaimer: The author’s views and opinions are for informational purposes only and do not constitute financial, investment, or other advice.