For crypto investors, the last several weeks have been a rollercoaster. Global economic troubles, along with Russia’s invasion of Ukraine, have wreaked havoc on global markets, including crypto.
Let’s look at five methods that inexperienced crypto investors can stay afloat during this wild ride.
Invest in assets that provide a safe haven
If the market’s present volatility is scaring you, one of the simplest things you can do is move your digital savings into safe-haven assets. It’s vital to remember, though, that safe-haven assets only reduce risks, not remove them. Stablecoins (for the truly risk-averse), gold-backed tokens, and bitcoin are all safe-haven assets in the crypto markets (BTC).
While most crypto investors dislike fiat currencies, investing in stablecoins like tether USD (USDT) or USD coin (USDC) can help you avoid losses if the crypto markets see a severe drop. Although US inflation is increasing, it is unlikely to have an impact on your portfolio if you keep your money in dollar stablecoins for a few weeks.
You could even invest some or all of your money in gold-backed stablecoins. Since the beginning of the year, gold has performed strongly, confirming its status as an inflation hedge and safe-haven asset during times of global turmoil.
Finally, you could convert your holdings to bitcoin. Yes, bitcoin is a hazardous asset, but when the crisis in Ukraine broke out, it outperformed many other cryptoassets, and it is now trading higher than it was on the day the war broke out, after a few tumultuous weeks.
Place your bets on stablecoins and buy the dips
If you feel the crypto markets will continue to rise after this period of volatility, you might invest in stablecoins and start purchasing dips to rebuild your digital asset portfolio.
Investing in a digital asset when its price falls is referred to as “buying the dip.” The idea is to get in while it’s still cheap(er) rather than making a significant one-time investment in the asset.
This strategy could allow you to gradually rebuild your portfolio at potentially favourable entry points, which could pay off handsomely if the crypto market continues to climb. However, as the market has shown on several times, it may continue to slump for longer than you would want.
“chill” and the dollar-cost average (DCA)
Dollar-cost averaging bitcoin or any other cryptoassets you believe will appreciate in value over time is arguably one of the best strategies to invest in crypto during periods of extreme market volatility.
Buying a fixed quantity of bitcoin at regular periods, regardless of the cryptocurrency’s price, is known as dollar-cost averaging. The goal of this investment strategy is to smooth out market volatility by purchasing tiny amounts of BTC at regular intervals, resulting in an average price for BTC.
Dedicated DCA apps, most of which allow users to automatically invest in bitcoin using periodic bank payments, are used by crypto investors who dollar-cost average. You could even DCA other digital assets by designating a specified day each month or week to manually purchase a predetermined quantity at such times.
Crypto derivatives can be used to hedge
You could utilise crypto derivatives to hedge your portfolio and limit losses if you’re comfortable with derivatives.
Futures and options on BTC and ETH, for example, allow investors to hedge their digital asset portfolios by functioning as a sort of insurance against falling values.
For example, if the market (and the value of your crypto portfolio) falls dramatically, you might short bitcoin futures to profit on your futures position while balancing the losses with the derivatives position.
Futures are simple to understand and may be found on most major cryptocurrency exchanges. However, you’ll need to assess your portfolio’s hedging ratio to make sure you’re covering losses during periods of extreme volatility.
You might also diversify your crypto holdings by purchasing bitcoin or ethereum options (ETH). Options trading, on the other hand, is more complicated than futures trading and may be too difficult for beginner investors.
Those willing to put in the effort to learn, on the other hand, could purchase a BTC put option that will be “in the money” at a specified price, at which point the options position will offset losses if the value of your crypto portfolio falls dramatically. When utilising options or any other type of financial derivative to hedge your portfolio, determining the hedge ratio is critical.
HODL
The classic “war cry” that Bitcoiners use on a regular basis, “HODL,” could actually be sound counsel during tumultuous times, especially if you’re holding high-quality digital assets like BTC.
If you are confident in the long-term success of the digital currencies and tokens in your portfolio, you might simply keep “HODLing” them and wait out this volatile phase before making any portfolio adjustments.
If bitcoin is a big part of your portfolio, this is definitely the best option.
Whatever you do, keep in mind that in the global crypto markets, volatility is a given. From day to day, your digital asset portfolio can easily fluctuate by 10% or more. That’s a common occurrence in the crypto world.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.
