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Crypto Volatility: Time To Rethink Your Investment Strategy?

By Nicholas MaithyaCryptocurrencyJan 08, 2019 09:32AM ET
www.investing.com/analysis/crypto-volatility-time-to-rethink-your-investment-strategy-200373546
Crypto Volatility: Time To Rethink Your Investment Strategy?
By Nicholas Maithya   |  Jan 08, 2019 09:32AM ET
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Last year was one of the worst periods in the cryptocurrency market since its emergence in the early 2010s. This year, things look promising as new investors prepare to join the market while it’s still at 2-year lows.

The cryptocurrency market has dropped more than 80% to a market cap of about $135.8 billion since peaking in December 2017 when it had a market capitalization of more than $800 billion. At the time the price of bitcoin came within a few paces of topping $20,000 but has since edged downwards to trade at around the $4,100 mark.

Bitcoin
Bitcoin

This level of crypto price plunge has created uncertainty about which positions to take on the likes of Bitcoin, Etherium and Ripple in 2019. Even with the expected resurgence, there are skeptics out there who still see crypto prices falling further.

This creates a unique opportunity for all investors. Aggressive investors can take on the market ‘heads on’ while those that are a bit cautious can explore alternative methods of investing in cryptocurrencies and related products. Aggressive investors will be looking to capitalize on the increasing volatility in the market by engaging in short-term trading.


Trade The Crypto Volatility


The price of bitcoin is currently oscillating within the $3,900 and $4,100 levels, which means that it is a $200 swing. Day trading can be a useful way to profit from the market before it finally establishes a stable bullish trend.

One of the ways that traders can invest short-term in the cryptocurrency industry is through buying and selling via crypto exchanges. However, as most retail investors would notice, this does not provide a huge window for profits because investors can only trade with the cash they have and liquidity is not as much.

As such, some investors have pursued alternative methods for crypto trading, which include among others, trading via forex brokerage platforms. Trading crypto via a forex trading platform allows investors to use more money than they have in their account to place orders.

These platforms also provide investors with a high level of liquidity due to the expansive nature of the forex market. Online trading thrives on volatility and if the crypto market provides that, retail forex traders will be looking to pounce thereby increasing liquidity.

These platforms also provide investors with several features useful for short-term trading including technical analysis tools and indicators that might not be available on a crypto-exchange platform. The global cryptocurrency market might be going through a rough patch but with so many options open to capitalize on this volatility, aggressive investors can always find a way to benefit.

What About HODLing?


This might sound like the worst strategy to use now in the cryptocurrency market. HODLing, which basically is the buy-and-hold strategy for cryptocurrencies works better when the market is on a bull run. Currently, judging by the price of bitcoin, it looks flat with significant swings.

However, if the resurgence that’s expected in 2019 is to arrive at some point this year, then why not try to HODL? The last time the cryptocurrency market dipped this much was back in the 2013-2015 period when the price of bitcoin fell from about $1,150 in Nov. 2013 to trade below the $200 mark in Jan. 2015.. At the time, bitcoin was pretty much the identity of the crypto market.

The following 2-year period saw the market go through a slow, but steady climb before the price of Bitcoin skyrocketed towards $20,000 in Dec. 2017. The market has certainly become more efficient now since more people are trading in cryptocurrencies compared to 2-3 years ago. As such, it might not be long before the current sideways movement ends with a major rally in crypto prices. This could be a proper time to analyze various cryptocurrencies for a HODLing investment.

For investors looking to HODL, buying cryptocurrencies via a crypto exchange rather than a forex brokerage platform would yield more returns because there are no additional costs associated with HODLing crypto. In a forex brokerage platforms where traders use margin trading, there are overnight charges, weekend charges and these could add up significantly by the time the price of bitcoin rises to the desired level to cash out.

Try Asset-backed Crypto?


Traditional investors attribute most of the volatility in cryptocurrency prices to the lack of intrinsic value. Legendary value investor Warren Buffett and Berkshire Hathaway’s (BRK.A) BRK.B) vice chairman, Charlie Munger, are known critics of bitcoin for this particular reason.

However, over the last few years, crypto innovators have tried to come up with ways to attach some value to their token sales. The most notable commodity used in this respect is gold, with several cryptocurrencies now having their value attached to the price of gold and silver.

However, one of the most interesting developments in this space has been the emergence of diamond-backed cryptocurrencies. These are tipped to revolutionize the diamonds industry within the next few years. As experts note, investing in diamonds can be a tricky affair especially if you are not well versed with the technicalities of gem verification, tracking clarity and cut, among other factors. However, with blockchain technology and the power of decentralization, things could change soon for better.

Diamonds are scarce in nature and this makes them extremely expensive and at times, their prices can be unpredictable. This is why experts advise their customers to invest in GIA-certified gems and avid loose diamonds. Putting them in the blockchain makes the diamonds market more accessible to ordinary investors.

Conclusion


In summary, the cryptocurrency market may be bearish and highly volatile for now, but this does not mean that there are no investment opportunities. Short-term trading via forex brokerage platforms provides an opportunity to capitalize on volatility.

On the other hand, with the market seemingly bottoming, this could yet be a good opportunity to HODL as investors look forward to a resurgence in crypto prices in 2019. And for those who prefer crypto investments backed with real assets, asset-backed cryptocurrencies might offer a good alternative with some of them backed by precious metals and luxurious gems.

Author disclosure: Trading cryptocurrencies or investing in ICOs or related products involves risk. This is not an endorsement to invest in or trade any of the cryptocurrencies or stocks mentioned in this article. I have no positions in the cryptocurrencies and stocks mentioned.

Crypto Volatility: Time To Rethink Your Investment Strategy?
 

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Crypto Volatility: Time To Rethink Your Investment Strategy?

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Tokyo Tiger
Tokyo Tiger Jan 10, 2019 3:40PM ET
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crypto is not an investment
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