Crypto Asset Strategies

Managing Crypto Market Volatility

Managing Crypto Market Volatility

Editor’s Note: Adam Sharp is currently hard at work researching new cryptos to invest in. In the meantime, Senior Managing Editor Vin Narayanan is filling in.

Dear Member,

When you invest in crypto, it’s important to keep reminding yourself that crypto is a volatile asset. Huge swings in prices – even within the same day – are to be expected.

When I first started thinking about what I wanted to write about in this week’s update, it was a green number day in the markets. The prices for most coins were surging. As I write this, it’s a sea of red. This is thanks to a massive bitcoin sell order on Bitstamp that led to a $250 million liquidation of long positions on Bitmex. It appears that a big short seller intentionally triggered the dip. Bitcoin is down 9% in the last 24 hours. And most coins in the CoinMarketCap top 100 are down at least 5% as well.

A pullback like this is to be expected after the run-up we’ve had, and it doesn’t change the newly bullish direction of the market.

I believe today’s correction gives us a great buying opportunity. It’s also a good opportunity to look at different ways to manage crypto’s volatility as you buy into the market.

Buy the Bear

When 2019 began, we were in the midst of a prolonged bear market. And one of the most difficult things to do is buy into a bear market. As an investor, it makes perfect sense. You always want to buy low. But emotionally and psychologically, it’s really difficult to execute that plan.

If you did buy into our portfolio at the beginning of the year, you’re currently reaping the rewards of a buy-and-hold strategy. Ark is up 44% this year. Bitcoin is up 93%. BitShares is up 68%. Decred is up 68%. Nano is up 91%. OmiseGO is up 43%. Ravencoin (305%), vertcoin (65%) and high performance blockchain (68%) are all up as well. Only haven protocol is down (47%) on the year.

Buy and hold works really well in crypto – especially when you’re buying in a bear market. Crypto goes through boom-and-bust cycles. Each boom cycle so far has led to higher highs and higher lows. So if you can find the will, buying into the bear market and buying as a long-term play are your best moves.

Buy the Dips

Even as markets move up, they don’t move up in a straight line. There are all sorts of corrections, consolidation points and inflection points along the way. This is one of them.

The good thing here is we know that the market dropped because of a specific action. But the overall market trend remains up. The markets should recover well from this. So buying the dip here makes sense.

But often, it’s hard to distinguish a dip from a downturn. That’s what makes executing this strategy so difficult. If the market pauses in a spot long enough for you to recognize the trend, then it makes sense to buy in. But if the market is hopping all over the place, it’s tough to time it correctly.

Dollar-Cost Averaging for the Win

There is a way to accumulate crypto at a good price while taking crypto’s wild swings into account. It’s called dollar-cost averaging. You’ve heard us talk about this before. But with the markets trending up right now, it’s important to talk about it again.

With dollar-cost averaging, you buy a set amount of crypto (or any asset) at regular intervals. It could be every three days, every week, every two weeks, every month – whatever you’re most comfortable with.

By buying the same amount at regular time intervals, you average in the price swings, hopefully lowering your overall cost of acquisition. And you don’t have to worry about whether you’ve timed the market perfectly. That risk is removed from the equation.

It’s an exciting time in crypto right now. The bear market appears to be over, and the markets are trending up. Now it’s time to be smart about how you invest.

We’re actively looking at several cryptos to invest in. And we’ll keep you posted on our progress.

Good investing,

Vin Narayanan

Senior Managing Editor, Crypto Asset Strategies

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