Lama is a blockchain enthusiast, the managing editor of block-block-block.com, and TabbFORUM contributor.
The trends from last year have piqued the interest of institutional traders, which increasingly have begun to see the promise of profits in cryptocurrency trading. That said, the volatility of the market tends continues to keep some of them at bay. Although the crypto market is a constant rollercoaster ride, there are ways you can protect yourself from its unpredictability. Here are a few things you can do to manage the highs and lows smoothly.
1. Keep abreast of what’s going on
Too many times the fundamentals get overlooked. Staying informed is the easiest way to navigate the choppy waters of cryptocurrency trading. Sure, it can be hard to keep track of everything that’s going on with different cryptocurrencies yourself; that is why aggregator services and forums are your best friend. Design your content consumption online so that it always touches upon recent developments in the space. Do that regularly so you’re not caught sleeping when there’s an important “up” or “down” in the market.
2. Invest long term and buy the dip
The volatility of cryptocurrencies isn’t necessarily a bad thing. First, the downturns are an opportunity to augment your wealth. Buying the dip is a philosophy that institutional traders are all too familiar with and it applies to cryptocurrencies. Everyone loves a discount and that’s exactly how you should look at a drop in the price of a coin you’ve invested in.
At the same time, the all-pervasive volatility in this industry is a sign that you should be in the game for the long haul. Steep price drops can be scary, but stop freaking out every time bitcoin’s value falls by a few hundred dollars. Flash crashes are a fixture of cryptocurrency trading and those who stay composed during them set themselves up for big wins.
3. Diversify your portfolio
Bitcoin is undoubtedly an attractive investment right now. It is worth a lot of money and seems to stay that way despite downturns. Most other cryptocurrencies aren’t in the same galaxy as bitcoin when it comes to price, so most traders have focused their investments on it.
Although that approach may lead to profits in the short term, it’s also a way lose a lot of money. You don’t want to be caught with too many eggs in the bitcoin basket when its price drops. Minimize the risk you take by spreading your investment over a few different altcoins. Bitcoin can remain your major moneymaker, but make sure to diversify your portfolio with a few other cryptocurrencies.
4. Explore derivatives
Excitingly for institutional traders, we’re slowly beginning to see the emergence of a derivatives market for cryptocurrencies. Services such as BitMEX have been at the forefront of that phenomenon. Bitcoin futures are now trading on the CME and CBOE, which adds to the legitimacy of cryptocurrency on the whole.
In the financial markets, derivatives like futures and options are a way for investors to protect themselves from the volatility of assets. The ability to invest in cryptocurrency derivatives is a way not just to make money, but also to minimize some of the risk involved in the investment. A robust derivatives market will lead to more stable prices over time, leading to cryptocurrency becoming a more reliable asset.
5. Leverage trading signals
Everyone loves a good source for trading signals. As much as it might seem like it’s impossible to get a handle on how cryptocurrencies behave, there are services that institutional investors can leverage for signals.
For example, Signals lets anybody create an algorithmic trading model. And you don’t even need to know a lick of software programming. Users simply choose a bunch of indicators that matter to them, ranging from technical indicators to sentiment analysis. Signals then allow you to train your model on historical data so you can find out the best modalities for your strategy.
Similarly, ZeroSum is a first-of-its kind prediction market for cryptocurrencies. It lets people make money by forecasting the prices of different coins. What makes such a platform interesting for investors is that it offers a sentiment engine which can be leveraged as a source for cryptocurrency trading signals. Keep your eyes peeled for such services in order to get a leg up on your competition.