Most Crypto Investors Don’t Want To Hear This Brutal Reality
Bear market corrections are a lot more significant in the Crypto space than in any other market. However, they are relatively short-lived. Applying the appropriate strategies in a bear market can make them extremely beneficial. Zooming out, Bitcoin spends very little time in bearish terrain. Market downturns literally terrorize many Crypto investors. 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 its severity, compounded by how quickly 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 countermeasures investors can take to protect their portfolios when the going gets rough!
Why Less Exposure Can Sometimes Be The Smarter Crypto Move
An effective Crypto portfolio does not allocate a full share to volatile instruments such as BTC and altcoins. If your portfolio does not have a specific allocation set aside for stablecoins, you are likely to get burned along the way. As previously mentioned, before BTC hit 65K, I noted that 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 reduced this slightly through strategic buys as the market moved lower. It is wise to have a small allocation in stablecoins in a bull market, and not just in a bear market. You never know what the market is going to throw at you. Being prepared for any scenario is always a wise move.
This type of portfolio construction is absolutely imperative for hedging your entire portfolio. A 50% holding of stablecoin can substantially soften a market drop. In this specific case, a 30% market dump would result in only 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 And DeFi: One Of Crypto’s Smartest Income Plays
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. Innovative allocation of stablecoins is a sure way to hedge your Crypto portfolio. There are, however, more approaches one can take to capitalize on market drops.
More Ways To Use Stablecoins In Your Crypto Strategy
Not only should investors hold stablecoins in longer-term investments to hedge and grow their holdings, but also to pursue further investment. Having capital in the form of stablecoins to buy the dip is also extremely savvy! In this approach, there should also be the discipline of restraint. The dip often keeps going, and if you exhaust your capital, you won’t benefit as much. Even if you have capital left over after the dip concludes, it is better than having none if the dip continues.
Why Coin Selection Is So Important in Crypto Investing
It is also important to consider acquiring investment-grade coins that can generate income. This becomes extremely beneficial if the bearish price action is prolonged. Even BTC can earn yield, contrary to Warren Buffett’s viewpoint. In the case of DeFi, the income generation can be quite significant. This is also an avenue you can use 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 investing is to always 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 you would rather not find yourself, so take the necessary measures to protect your portfolio. Having a backup plan for your backup plan is a wise move. Some might consider it a little extreme. However, once you have spent a little time in this market, you may think otherwise.
Alternative Measures That Can Help You Minimize Crypto Losses
There are more ways to offset losses and encourage portfolio growth. However, these methods do exceed the parameters of the traditional investor who utilizes capital. These methods are revealed in a recent article. 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 are much more complex than many realize, which is why 90% of the market loses money! However, if you decide to enter the world of Crypto investment, ensure you are holding a couple of aces. Trust me, you will be glad you did!
Final Thoughts
Bear market corrections will, of course, hurt your portfolio. However, having an allocation to stablecoins provides you with an excellent opportunity to turn the dip to your advantage. Always be prepared for an unsavory surprise. The market has a way of dishing these out, especially when things appear to be heading in the right direction. Anyway, enjoy the ride! See you next time!