Not long ago, the hedge fund founder and philanthropist, Ray Dalio, warned us that there is a bubble in the Bitcoin market. He is not the only one making such statements. JPMorgan’s Dimon went even further, calling bitcoin (Bitcoin) a fraud. Surely there is room for concerns, as the total market cap of these virtual assets has surged from less than $18 billion to nearly $180 billion this year, the CoinMarketCap reports.
Lately, the cryptocurrencies have been experiencing some weaknesses, including drastic crashes. However, there are ways in which investors can profit from such crashes. Forbes suggests the following five steps:
Buy the dip to generate good profits
To successfully use this approach, it is essential for an investor to time the market, which many market experts describe as something very challenging to do.
"Buying a dip in a crash can be difficult,"
stressed Yazan Barghuthi, a project lead at Jibrel Networks, a blockchain company.
"because when do you know it has bottomed out?"
Another expert, Petar Zivkovski, the COO of Whaleclub, a trading platform based in Hong Kong, also spoke about the problems of this specific strategy.
"Buying the dip only works in a general bull market. If the global trend reverses, buying the dip is useless."
In addition, Zivkovski warned investors against relying on the assumption that Bitcoin will always rise in value.
Identify Robust Opportunities
It is important for traders and investors to keep in mind that even if the larger cryptocurrency market crashes, some of these digital assets would be able to hold up.
The founder and CTO of Coinsetter, now run by Kraken, Marshall Swatt said the following:
"Just like the NASDAQ bubble, there will be companies and tokens that go on to be very successful, perhaps a future Amazon."
Swatt suggested concrete steps for assessing tokens, advising that investors look for cryptocurrencies that have compelling business models and a solid foundation.
HODL Model: ‘Hold On For Dear Life’
One way to survive a crash in cryptocurrencies is to ‘Hold On For Dear Life,’ or simply HODL. This means buying digital currencies and holding on to them for quite some time, irrespective of how much the digital assets fluctuate in value.
Jibrel Networks’ Barghuthi calls this approach "classic," saying that "plenty of investors will probably use it if the market crashes.”
Zivkovski adds that while holding onto this manner is surely a practical strategy, traders who use it should stick to holding the top five cryptocurrencies by market cap.
Flocking to fiat currencies
Some investors advise to exit to fiat currencies during the crash of cryptomarkets. Tim Enneking, the managing director of Crypto Asset Fund, says the company often uses this tactic when the cryptocurrencies decline.
Swatt, however, stresses that using this strategy successfully may be easier said than done.
"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."
Investors can make very compelling returns by shorting Bitcoin if done correctly, it is an opportunity offered by many exchanges.
But according to Swatt, shorting is a strategy for more high-level investors. This approach is very risky, he added.
Before choosing and using any of the aforementioned strategies in order to profit from a crypto-market crash, investors should be sure to perform their due diligence.