Cryptocurrency and Bitcoin are Highly Volatile — How do you profit when they go down?

5 min read

If there’s a term that describes Bitcoin and other cryptocurrencies it is volatile. The prices of cryptocurrency rise and are able to fall in a similar manner, and speculation, sentiment, and even fundamental changes are swiftly integrated into the market. Even the seemingly stable stablecoin TerraUSD is soaring as fears quickly surfaced about its liquidity as well as The Treasury Department is citing the potential dangers that cryptocurrencies pose to the economy as a whole and is calling for more strict regulation of them.

As an example, Bitcoin was climbing in November 2021 and at an all-time highest of close to $69,000. However, just three months later the cryptocurrency lost almost half of its value and plummeted to just $35,000.

The volatility of the market attracts traders who want to make money However, it’s a nerve-wracking experience, especially for those who are new to investing and trying to make a mark. It’s likely that traders will experience more of this in the near future when new cryptocurrencies come into existence and other cryptocurrencies fall to the sidelines.

With the cryptocurrency market being so unstable what can the investors do to reduce their risk?

Five things to consider in the event that cryptocurrencies fall

Are you scared by the price drop or excited by the possibility of purchasing cryptocurrencies at a lower cost? Whatever the case there are five things to consider as cryptocurrency prices fall.

1. Stay Calm

When you decide to either exchange or trade your currency or look at the drop as an occasion to purchase more, it is important to keep a cool head. Making decisions that are influenced by emotions, especially in trading, is rarely a result of anything positive happening. Before you plunge into the market in a state of panic you should think about the reasons you’re trading crypto initially.

  • Do you invest because are convinced of the potential for growth over time?
  • Are you looking to earn a quick buck by trading short-term?

The answers to these questions will in making the best choice. In any situation, you’ll need to be in line with your own personal goals. Also, if you believe in the longevity of a possibility, then think about it in that way. If you’re looking for a trade that is quick consider that perspective.

2. Examine the situation

Are there developments that are that is influencing the price of trading for Bitcoin and other cryptocurrencies? It’s possible there’s important news that’s changed the market’s perception as well as more than just price movement or rumor that drives sentiment.

In 2021, actual developments hurt prices. China’s decision to block banks from offering services related to crypto was another tightening of the rules since the country already banned cryptocurrency exchanges in 2017 even though it didn’t prohibit people from owning cryptocurrency. In 2021 in 2021, the Federal Reserve decided to cut liquidity within the banking system and several cryptocurrencies have seen an incredibly low level through 2022.

In May 2022 In May 2022, May 2022, the stabilized coin TerraUSD plunged when traders took part in an old-fashioned “bank run,” as they were worried that the currency did not have the necessary crypto assets to secure its dollar peg. The news spread to other crypto markets, where investors worried selling might lead to the selling.

Thus, these changes are yet another blow to the market that is growing, that had been enjoying huge capital inflows.

3. Be aware that volatility can be the essence of the game.

Cryptocurrency is volatile by nature. Since crypto does not produce cash flow, investors have to depend on changes in the mood to determine the price. This means that the market could fluctuate between extreme optimism as it did at the beginning of 2021, and pessimistic desperation, and back again within a couple of months. The ruckus surrounding Coinbase’s launch of Coinbase in 2021 helped to drive positive sentiment toward cryptocurrency, while the decrease in stimulus to the economy sparked negative sentiment towards the close of 2021 and the beginning of 2022.

When you’ve got an asset that is driven by emotions, the sentiments of investors propel the market. This is the case of stocks too, however, they may also be able to draw increasing cash flows from the issuing company, which can propel their rise.

This kind of volatility is precisely the thing that draws professional traders that use advanced algorithms to create sophisticated trades. This is something that “mom and pop” traders aren’t usually capable of making use of. The traders like volatility because it offers them the possibility to make money, and this is Wall Street’s business.

4. Review the future

Examine how the current scenario could unfold for cryptocurrency, in light of recent advancements: will governments be tougher with regard to the issue? Are they likely to encourage wider acceptance of cryptocurrency? Are new regulations going to help instead of hindering the market for cryptocurrency? What other factors could drive the market?

Can China’s move of banning cryptocurrency a sign of what’s to come? Maybe. India was mulling over the possibility of banning cryptocurrency, and it is the Russian Central Bank has expressed its opposition also. However, other countries, like those in the United States, are exploring ways to regulate cryptocurrency instead of banning it completely. A few countries, like El Salvador and the Central African Republic, have even declared it legal to use as a form of currency.

What other countries do is still to be determined but it’s evident that cryptocurrencies have real risks as a result of regulation, and that includes a regulation that could actually force these companies out of the market. With the growth of crypto, the risk is that it will become the victim of its own successes.

It’s not a good thing that crypto is often used in ransom attacks, as well as other criminal acts.

It’s, therefore, possible that the utopian visions of crypto purveyors could be legally wiped out. Of course, the political consequences are just one aspect of the future. Crypto is also facing other challenges such as the environmental and financial costs associated with ” mining” them.

Another issue is due to their volatility, cryptocurrencies are not a viable currency, and are “being sold to people who have no intention of using it” as a currency as I wrote about during Cheddar TV. In the end, IRS rules on taxation make cryptocurrency unwieldy an option for payment.

5. Find out how you can act

Once you’ve cooled down and evaluated the situation and its implications in the future, it’s time to think about how you can move forward.

  • Do the risky investments actually potential opportunities hidden in plain sight? If you see the situation this way, then you may consider the position you are currently in or take advantage of an increase in price to increase your investment.
  • Do you think the risk is likely to last or get worse? If so, you might want to cut your losses today and avoid the game in the near future.
  • Are the circumstances too murky? If it’s difficult to discern the direction of travel it’s possible to split the difference and sell a portion of your positions today, while you still have a chance to profit tomorrow.

Whatever you decide to do to take, you’ll need a plan that is based on your perspective of the possible dangers and benefits of cryptocurrency. However, it’s important to know it’s true that certain of the most knowledgeable investors in the world will not touch cryptocurrency and will strongly warn you against them as well. The legendary investor Charlie Munger, vice chairman of Berkshire Hathaway, said, “I admire the Chinese, I think they made the correct decision, which was to simply ban them.”

Munger is also recorded with this statement regarding crypto: “To me, it’s simply dementia. It’s like someone other than you is trading turds and you decide you don’t want to be excluded.”

Alternatives to crypto

They are extremely unpredictable and speculative. most investors aren’t comfortable placing a large amount, or even cash into these investments. The positive part for the investors is they can find alternatives to cryptocurrency that provide excellent long-term gains:

  • Individual stocks. If you’re willing to conduct the research and keep a close eye on your company’s performance, you could earn very high returns by placing your money into individual stocks, such as Amazon as well as Apple.
  • Dividend-paying stocks. If you’re looking to receive a cash payment in your investment, purchase dividend-paying stocks. They tend to be less volatile than stocks in general.
  • Index fund. If you don’t need to take on the task of locating individual stocks, but want to get the highest returns, then the best option is the index fund. An index fund is a portfolio of securities or other assets and is intended to track a certain set of stocks (such as an index fund like the S&P 500).
  • REITs. If you’re looking for a cash flow that is healthy, REITs are an option to consider dividend stock. REITs manage and own real estate, and have a solid longevity track record for earning. You can even purchase an investment fund, which means you don’t have to select specific REITs.

They are among the most potent alternatives to cryptocurrency.

Bottom line

A dip in the market for cryptocurrency could cause you to feel uneasy. Make it an opportunity to reconsider your reasons for being involved in the market in the first place. What are the risks and opportunities it brings?

Although Bitcoin is one of the most popular and has seen a dramatic recovery after previous declines of significant magnitude There’s no guarantee it’ll do it again particularly if it’s in the midst of grave existential issues as nations prohibit its use and possibly even have it as a property. This is the type of risk the investment could be destroyed or gain from if the actual situation isn’t as bad as the expectations.