A Brutal Reality
Many Crypto investors are literally terrorized by downturns in the market. However, if you follow a few proven principles, you may actually learn to love dips in the market. I think the scariest aspect of a Crypto dump is the severity, compounded by the rate at which it occurs. Bitcoin can dump 10% in minutes, leaving bag holders stunned and clearly unprepared. In all fairness, how can anyone actually prepare for such an event? There are occasions when it is a lot more obvious. For example, technicals are pointing towards weakness and volume is revealing a lack of muscle.
However, BTC and the Crypto market in general are highly irrational at times. This dynamic can often see the market act contrary to sentiment and even technical analysis. This does pose a dilemma, as how is an investor to prepare for such price action? The answer comes down to preparing for the worst, while hoping for the best! Let’s look at some simple counter measures investors can take to protect their portfolios when the going gets rough!
Losing Exposure Is Not As Bad As It Sounds
An effective Crypto portfolio does not have a full allocation dedicated to volatile instruments such as BTC and altcoins. If your portfolio does not have a specific allocation set aside for stablecoins, then you are most likely going to get burned somewhere along the road. As previously mentioned, prior to BTC hitting 65K, I mentioned a diversification into stablecoins was on the horizon for my own portfolio. As the price action unfolded between 50K and 65K, I was shifting into stablecoins. At one stage almost 40% was in stablecoins, I decreased this slightly with some strategic buys as the market moved lower.
This type of portfolio construction is absolutely imperative in the hedging of your entire portfolio. A 50% stablecoin holding has the ability to soften a market drop substantially. In this specific case, a 30% market dump would only impose a 15% drop in portfolio value. Sure, a significant amount of capital is removed from the market so to speak, but that is where creativity comes in.
Lending & DeFi
Lending has been a way to earn interest on stablecoins for some time now. In some cases, as much as 12%, providing at least some return in exchange for “safety”. However, in reality no single investment is safe! Although investments can be categorized in terms of risk/reward ratios. DeFi can actually provide meaningful returns, provided the risks are acceptable to your own risk profile. Creativity in the allocation of stablecoins is one sure way to hedge your Crypto portfolio.
There are however more approaches one can take in order to capitalize and benefit when markets drop.
Further Use Of Stablecoins
Not only should investors have stablecoins in longer-term investments, so as to hedge and grow holdings but also for further investment. Having capital in the form of stablecoins in order to buy the dip is also extremely savvy! In this approach, should also be the discipline of restraint. The dip has a way of continuously dipping and if you exhaust your capital, you won’t benefit as much. Even if you have allocation capital left over after the dip has concluded, it is better than not having capital in the event that the dip continues.
It is also important to consider acquiring coins for investment that can be utilized to generate income. This becomes extremely beneficial in the event that the bearish price action is prolonged. Even BTC can earn yield, contrary to Warren Buffet’s viewpoint. In the case of DeFi, the income generation can be quite significant. This is also an avenue that you can choose to make use of in extreme situations. You can choose to have this option available but not necessarily utilize it. One of the most important aspects to remember when it comes to investing is to always ensure that you have an ace up your sleeve.
Once you no longer have this advantage, you are at the mercy of the market! This is a place that you would rather not have to find yourself, so take the necessary measures in order to protect your portfolio.
There are more ways that can be utilized in order to offset loss and encourage portfolio growth. However, these methods do exceed the parameters of the traditional investor who simply utilizes capital. These methods are revealed in “The Crypto Wealthy Mindset”. Utilizing these methods and approaches will require some time and effort to set up. However, they can become a life jacket in turbulent times. Your portfolio requires support structures, safety measures and emergency measures. Without these in place, you become a gambler!
Gamblers are reliant upon luck. It is better to actually plan for success, which does not occur by accident. Portfolio construction and design is a lot more complex than many may think, which is why 90% of the market loses money! However you may decide to approach the world of Crypto investment, ensure that you are holding a couple of aces. Trust me, you will be glad you did!