- This is not financial advice.
- Do your own research before you invest in anything including this project
- This is an opinion, it is not a suggestion to invest or divest any cryptocurrency or token.
- Your capital is at extreme risk when investing in ICOs and cryptos.
- Please consult your local financial advisor to verify if cryptos are legal in your jurisdiction.
- Investitin.com is not a broker-dealer or a financial advisor.
- Central banks and Security regulators have warned investors not to invest in cryptocurrencies and ICOs
- Crypto projects are not regulated in most juridictions and may constitute a security. Consult your financial advisor.
We are in a crypto bull, (December 2017). Time to have a look at potential U-turns.
The cryptocurrency market is volatile. Double-digit losses are not uncommon, however, history shows that these losses where eventually regained. Who can guarantee that this will always be the case?
Investors who foresee trouble are likely to keep more of what they have today by playing the long game.
An open mindset is crucial, Perma bulls or Perma bears can be blindsided by their own blinkers. While fundamentals, the network effect and adoption curves can be convincing; no one knows what the future has in store for us. An open mind will allow an investor to evaluate all risk mitigation tools.
The Dotcom bubble, The crash of 2008 and the Great Depression are lessons which have value to today’s crypto investor. At some point, the sky will stop being blue and those with the umbrellas will be happy to have invested one when the winds change.
The dopamine of 2x , 3x , 5x gains can become addictive. These gains are the basis of a thrilling experience rather than a trading one. A trading one has as objective monetary gains while a thrilling one has emotional highs. Why are you in the crypto markets?
Not all traders have jumped into the crypto market at the same point, what is risky for one person is not necessarily risk for the next. A crypto bear market protection strategy depends on the entry point in a trade. Bitcoin is 16k USD today those who come in at this price can experience a crash if it goes down to 10k USD. However, those who bought at $250, will brush of a move of BTC from 16k USD to 10k USD.
In crypto, the buck stops with you. In 2008, certain actors crucial to our financial system were bailed out, the taxpayer paid for the risks. In crypto, there are no guarantees. The crypto economy does benefit from such a safety net, and no one will come to the rescue of the market or individual investors when the times get tough.
Markets tend to take the stairs up and skydive down. Make sure you have a parachute.
How will the crypto crash start?
- Laws which make individual register their crypto assets
- A major terrorist attack; which uses cryptos, for its financing
- Claims that certain states are using Cryptos to bypass sanctions
- Ban by a Supranational organisation (EU, IMG, G20)
- Cryptos as the finance of crime and terrorism
- Cryptos becoming a safe haven during the next stock market crash
- Cryptos start to compete with traditional stock markets
- Worldwide clamp down on ICOs
- State cryptocurrencies
My guess is that the most likely the source of the crash will be a coordinated assault on default private cryptocurrencies (Example: Monero and ZCash) first by a supranational organisation like the IMF or the G20. Governments know that acting alone will make little difference because cryptos can operate freely through borders pretty much unhindered.
I expect when Governments feel that the threat of faith in their FIAT starts becoming too much they will act in unison to preserve the monopoly on the creation of money. They will just stop this. Just like the war on drugs, there will be the war on cryptos. It will not come out of the blue, but the arguments will be built on something significant, such as a “Bitcoin facilitated” terrorist attack or Crypto is a threat to people’s pensions.
Another scenario would be, a stock market crash followed by a cryptocurrency market boom. This has happened in Greece, Venezuela and Zimbabwe. When Brexit was official Bitcoin went up. A massive stock market crash, in parallel to important gains in Bitcoin, will not be perceived as beneficial to society and an excuse to attack crypto markets will present itself and acted upon.
There are other self-inflicted reasons for the cryptocurrency market to crush. The ICOs, the many scam coins and the pump and dump groups operating on telegram and in newsletters. All provide a basis for tougher controls.
State cryptocurrencies will eventually be launched, Governments will want to keep a monopoly on this space and could see private cryptos directly competing with their newly minted cryptos. The day state cryptos become a reality, is the day crypto investors have more reasons to worry about state intervention.
New Cryptocurrency risks in 2018.
2018 will be the year when cryptocurrencies go viral. Cryptos have exploded form a niche crypto community, to a larger community of geeks, then to speculators and now we are entering into the institutional investor phase.
This is money going viral a network effect – a form of human compound interest – the more people have knowledge and access to decentralised, uncensored, self-sovereign money the more its power grows.
2018, will be the year of the institutional cryptocurrency investor. These investors are not FOMOed into any scam coins. Their analysis of team’s, ideas, timelines and feasibility is professional and through. It is quite likely to see a bear market in the useless coins and a bull market in coins with those that have value and utility. Institutional investors will separate the wheat from the chaff.
This maturity in the market comes with its own perils. Institutional investors will rank their crypto investments held by will be ranked as high risk. When it comes to derisking, cryptos will be the first to be sold off by institutional investors. If they have margin positions they need to cover, higher risk investments will be sold off first. Unfortunately, this means that the stock market will become more correlated with the cryptocurrency market.
As more institutional investors become important parts of the cryptosphere, the real economy will become more connected with the crypto markets.
How to minimise risks to your portfolio in the case of a crypto market crash?
1. Margin trading
Borrowing money to invest in cryptos or margin trading is a high-risk activity and will amplify losses if the crypto markets head south. Do not invest money you can afford to lose. A general rule of thumb is: If you are not sleeping well at night because of your cryptocurrency portfolio it is time to change strategy.
Ironically that with the skill to margin trade can make huge gains a crypto bear market. Bitmex does offer margin trading tools.
2. Diversify within and out of the cryptocurrency
A simple way to diversify into a broad set of cryptocurrencies. Is Combi coin (affiliate link) prefered vehicle to do this is Combicoin
There are certain crypto projects which have value outside of the cryptosphere, this feature could be a shield in case of a crypto bear market. Such as: Populous, Propy, CryptF, Bankvault, Caviar, SIFT and WaltonChain. This feature could provide a price floor, project which are solely entered on the crypto economy have less of a viable floor.
A simple way to move out of the cryptocurrency market into gold in a few clicks is Vaultoro.
3. Invest in value in the good times, they will drop less in the bad times.
Think like an institutional investor, find many undervalued projects which has undiscovered, then invest in a select few. Good research skills, Due diligence, online discussions, meetups, are some of the core ingredients to finding the gems.
Invest in a specific set of cryptocurrencies which have clear objectives, a clear identity and a team which can implement a feasible idea.
ICO Investing is similar to financial acrobatics without a safety net, you could very easily lose your hard earned crypto. When the crypto bear is out of the cave charging against the bulls, the ones who have invested in solid investments will lose less than the others. The speculative tokens will suffer, it will be messy people will lose money.
In the next crypto market crash Altcoins, in particular, scam coins and scam masternode coins will be the first in line. Some will be inevitably lost to the history or walloped back several pages backwards on coinmarketcap. Founders and developers finding themselves holding worthless bag will abandon projects.
4. Profit taking strategies when the times are good.
Compound interest is the most powerful force in the universe. Each profit-taking event is like a dividend which can be deployed in another more promising short-term trade or hodl. Doing this successfully repeatedly is the best inoculation against the next crypto crash.
Defining profit; Is profit from taking simply transferring from altcoins to bitcoin or from bitcoin to tether or from bitcoin to fiat? What is the baseline on which to calculate the profit. Set you own loose, and play with the same rule book. There is a significant psychological gap between taking paper profits from altcoins to BTC,DASH or ETH or booking real profits back into fiat.
My definition of HODL is: Hold until the value of a crypto portfolio becomes life changing enough to leave your current way of life and move permanently into the one you wish to live for the rest of your days. You can choose to HODL through the crypto bear market.
6. How to profit from a crypto bear market?
Keep some powder dry, have a shopping list and dollar cost average your way in during the crash.
If the regulatory Shumer hits the fan, prepare your due diligence on which jurisdictions are crypto friendly and make your plans accordingly. Ukraine, Malta, Switzerland and Gibraltar seem to be warming up to the sector more than other countries.
7. Lobby your representatives.
Come election time ask your representative what is their position on Bitcoin, Cryptocurrencies and ICOs. Make your vote help your investments! Entice the crypto community to do so as well, help the mainstream politicians understand the power and benefits of crypto. Ask them how crypto friendly they will be and what will be their concrete actions in this regard,
Today December 2017, crypto traders who came in last year can harvest their profits. While the sun is shining, let us not forget that the bear is hibernating, but at some point, he will have to take a stroll outside and will do so on an empty stomach. If you get ready today for the visit, when he arrives your portfolio will be better protected than others.