In January 2016, the price of the pioneer cryptocurrency Bitcoin was valued at approximately USD 367. Since then, the crypto enjoyed a steady increase in price, hitting an all-time high of approximately USD 13860 in December 2017.
The year 2018 witnessed sharp declines in the value of Bitcoin. As of December 2018, the value of the leading crypto had fallen by roughly USD 10419, hitting a low of USD 3441.
In 2019, the price of Bitcoin enjoyed an immovable increase up to June when it hit the USD 10908 mark. As of November 2019, Bitcoin was valued at about USD 7729.
Other approximate metrics associated with the value of BTC published on Statistics include:
|BTC Value (USD)
Plotting the above metrics gives us the following graph:
The above statistics give a gist of the notorious volatility characterizing the cryptocurrency market. Unraveled below are some key ways that you can utilize to hedge your crypto investments against market volatility.
Diversify your portfolio
Diversification is one of the most recommended investment strategies not limited to cryptos. Sometimes, not all altcoins follow the same market trend. This means that as one altcoins gains in value, another one could be losing value. Enlarging options, therefore, spread risks, thus protecting you from the failure of one investment through benefits promised by other altcoins.
There are more than 1000 cryptocurrencies available, making diversification possible. However, you should carry out thorough research before deciding on which altcoins to consider for branching out your portfolio.
Despite diversification being a potential option to maximize gains while minimizing losses from cryptocurrencies, learn never to overestimate the amount of risks you can handle. This will help you effectively manage your portfolio.
Mitigate losses through establishing basement prices
Traditional trading platforms allow investors to determine the amount of risks they can endure. For instance, with a stop-loss order, trading is terminated when the price of a given digital asset drops beyond the specified limits.
Thanks to technology, cryptocurrency trading portfolios have tools that investors can utilize to manage risks and maximize profits. Depending on how comfortable you are with your portfolio, you can take short or long positions to hedge against risks attributed to market shifts.
On a different note, setting basement prices is an excellent approach to investors who trade crypto for commodities.
Capitalize on swing trading
If you are proficient at making technical analysis of the crypto market, then swing trading is the right option for you. Swing trading is a trading strategy that attempts to capture gains in the cryptocurrency market over a short period. The time can range from a few days to weeks.
Unlike other forms of trading, swing trading exposes an investor to overnight risks. Due to the volatile nature of cryptocurrency, a trader can capture small chunks of profits associated with market trends rather than wait for the large movements.
Compared to other forms of trading, swing trading is more time consuming as it requires one to spend a substantial amount of time monitoring market trends.
Make use of derivatives
A derivative is a contract between two or more parties, whereby the value of financial security is based upon an underlying asset. Derivatives are widely utilized in traditional markets and still at their infancy stages in crypto trading. Nevertheless, you can always use them for mitigating losses and maximizing ROIs.
The three forms of derivatives utilized in traditional markets include swaps, futures, and options. Futures and options are the most common ones in the cryptocurrency market. In the former, a buyer has an OBLIGATION to purchase crypto from a seller (and vice versa) at a fixed and predetermined price in the future. On the other hand, in options, a crypto investor has the RIGHT to purchase a coin from a seller (and vice versa) at a fixed and determined price in the future.
You could HODL if you have faith in the market
The term HODL came from a member of the Bitcoin Forum who misspelled the word ‘hodling for ‘holding’. However, with crypto volatility, the typo is an acronym that stands for ‘Hold On for Dear Life.’
If you have hopes that the value of various assets in the crypto market will surge in the future, you could wait for the volatility to unfold up to such a time in which you are comfortable with the returns.