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Recently, a range of analysts have weighed in on whether cryptocurrencies are in a bubble.There is certainly cause for concern, as the total market capitalization (market cap) of these digital assets has surged from less than $18 billion to nearly $180 billion this year, according to CoinMarketCap. However, these currencies have been suffering some weakness lately, as many have dropped significantly from their peaks.[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]How To ProfitShould the crypto markets crash, there are several ways that investors can profit.As for which approaches are best, investors will need to decide for themselves.This choice will depend largely on their risk tolerance, as well as where they believe the markets will go next, said Charles Hayter, co-founder and CEO of digital currency platform CryptoCompare.
1)Buy The DipBuying the dip can generate compelling returns.However, in practice, pulling this off effectively may be easier said than done.Using this strategy successfully requires an investor to time the market, something that many market experts have described as very challenging."Buying a dip in a crash can be difficult," emphasized Yazan Barghuthi, project lead at blockchain company Jibrel Networks, "because when do you know it has bottomed out?" He noted that after peaking in 2013, Bitcoin prices gradually lost value for about two years.Petar Zivkovski, COO of leveraged digital currency platform Whaleclub, also spoke to the caveats surrounding this particular strategy."Buying the dip only works in a general bull market," he said. "If the global trend reverses, buying the dip is useless." Zivkovski further warned traders against relying on the assumption that Bitcoin will always rise in value. 2)Pinpoint Strong OpportunitiesInvestors should keep in mind that even if the broader cryptocurrency market crashes, some of these digital assets could hold up very well.Marshall Swatt, founder and CTO of Coinsetter, which was acquired by Kraken, commented on this situation. "Just like the NASDAQ bubble, there will be companies and tokens that go on to be very successful, perhaps a future Amazon," he stated. Vinny Lingham, CEO of Civic, suggested that investors "find quality coins with teams you can trust to execute and weather the storm" and then hold. Swatt offered specific suggestions for evaluating tokens, advising that investors look for digital currencies that have a solid foundation and compelling business model.3)Hold On For Dear LifeOne way to weather a crash in digital currencies is to Hold On For Dear Life, a strategy that many in the industry refer to simply as HODL.Basically, this means buying cryptocurrencies and holding on to them for substantial period of time, regardless of how much they fluctuate.Barghuthi described this approach as a "classic," stating that "plenty of investors will probably use" it if the market crashes, said Barghuthi. While holding in this manner is certainly a viable strategy, investors who use it should stick to holding the top five cryptocurrencies by market cap, said Zivkovski.4)Exiting To Fiat CurrenciesSome traders suggest flocking to fiat currencies when crypto markets crash.Crypto Asset Management, for example, frequently uses this approach when these digital assets decline, said Tim Enneking, the firm's managing director.However, Swatt emphasized that using this strategy successfully may be easier said than done."Exiting to fiat requires that you be able to time the market, both when you exit and again when you return," he said. "The smartest strategy is to allocate money you can afford to put at risk, and then stick with your plan regardless of the variations in the market." 5)Shorting BitcoinIf done correctly, traders can generate very robust returns by shorting Bitcoin, an opportunity offered by many exchanges.Bitfinex, Poloniex and Kraken all offer this functionality, noted Enneking.However, shorting is a strategy for more sophisticated investors, asserted Swatt. This approach is very risky, he noted.Before using any strategy in an effort to profit from a market crash, investors should be sure to perform their due diligence.Disclosure: I own some bitcoin and ether.
1)Buy The DipBuying the dip can generate compelling returns.However, in practice, pulling this off effectively may be easier said than done.Using this strategy successfully requires an investor to time the market, something that many market experts have described as very challenging."Buying a dip in a crash can be difficult," emphasized Yazan Barghuthi, project lead at blockchain company Jibrel Networks, "because when do you know it has bottomed out?" He noted that after peaking in 2013, Bitcoin prices gradually lost value for about two years.Petar Zivkovski, COO of leveraged digital currency platform Whaleclub, also spoke to the caveats surrounding this particular strategy."Buying the dip only works in a general bull market," he said. "If the global trend reverses, buying the dip is useless." Zivkovski further warned traders against relying on the assumption that Bitcoin will always rise in value. 2)Pinpoint Strong OpportunitiesInvestors should keep in mind that even if the broader cryptocurrency market crashes, some of these digital assets could hold up very well.Marshall Swatt, founder and CTO of Coinsetter, which was acquired by Kraken, commented on this situation. "Just like the NASDAQ bubble, there will be companies and tokens that go on to be very successful, perhaps a future Amazon," he stated. Vinny Lingham, CEO of Civic, suggested that investors "find quality coins with teams you can trust to execute and weather the storm" and then hold. Swatt offered specific suggestions for evaluating tokens, advising that investors look for digital currencies that have a solid foundation and compelling business model.3)Hold On For Dear LifeOne way to weather a crash in digital currencies is to Hold On For Dear Life, a strategy that many in the industry refer to simply as HODL.Basically, this means buying cryptocurrencies and holding on to them for substantial period of time, regardless of how much they fluctuate.Barghuthi described this approach as a "classic," stating that "plenty of investors will probably use" it if the market crashes, said Barghuthi. While holding in this manner is certainly a viable strategy, investors who use it should stick to holding the top five cryptocurrencies by market cap, said Zivkovski.4)Exiting To Fiat CurrenciesSome traders suggest flocking to fiat currencies when crypto markets crash.Crypto Asset Management, for example, frequently uses this approach when these digital assets decline, said Tim Enneking, the firm's managing director.However, Swatt emphasized that using this strategy successfully may be easier said than done."Exiting to fiat requires that you be able to time the market, both when you exit and again when you return," he said. "The smartest strategy is to allocate money you can afford to put at risk, and then stick with your plan regardless of the variations in the market." 5)Shorting BitcoinIf done correctly, traders can generate very robust returns by shorting Bitcoin, an opportunity offered by many exchanges.Bitfinex, Poloniex and Kraken all offer this functionality, noted Enneking.However, shorting is a strategy for more sophisticated investors, asserted Swatt. This approach is very risky, he noted.Before using any strategy in an effort to profit from a market crash, investors should be sure to perform their due diligence.Disclosure: I own some bitcoin and ether.
