Let's Talk—If Bitcoin Is Heading Towards a Bubble-How Will You Hedge Your Risk?
Bitcoin has rallied beyond anyone's wildest expectations! This year Bitcoin and alt-coins have made it to the newsrooms of mainstream media. There is no dearth of people known to us in our lives beginning to offer price predictions or expectations of how high it will go. It's already happening!
Typically in a bull market situation most predictions about prices tend to come true. There's only one way the price is going, and that is up! Your fears are allayed by wide spread pragmatism.
You may think of me as a skeptic, but I'm a realist. As an investor, for all practical purposes I like being prepared for a worst case scenario. Hence, I cannot stop myself from asking the question, 'What if these rallies are heading towards a major bubble?' If so, 'How do I protect my investments?'
I have a decent risk appetite and in the past 6 months regular trading has allowed me to increase the % of Bitcoin in my crypto portfolio. This has also allowed me to increase my stake on Steemit. Given the recent set of rallies, every one of those investments have paid off! Steem has doubled up in recent weeks, which is a wonderful for us all. I've also invested only what i'm prepared to lose 100% so I'm as 'safe' as I can be!
When it comes to market dynamics and government policies, things change quickly in this industry. Crypto is a fast paced industry where things change by the minute, not days, weeks or months. Volatility and low-volumes causes massive spikes in price, and massive dips as well. This can trigger all your stop losses within seconds—the Ethereum flash crash on June 21 comes to mind! However, I've generally sold a little at the top to cover my principal investment amount.
@acidyo wrote in his post that many cryptos today are highly overvalued and I agree. In most cases, there's a massive jump in their valuations overnight and some of them barely have a working product in place. I'm not complaining though, clearly we're all in profit right now. Having said that...
As a cryptocurrency enthusiast and a bit of an anarchist, I'm not pleased with the idea of holding a lot of Fiat currency anymore. Most banks in India offer a decent 6% rate of interest on long term fixed deposits-this is good but we're down from ~10% 2-3 years ago.
Indian banks have had a good run without any major bankruptcy issues and it's quite reassuring to hold your money in the bank. But then it doesn't grow, leaving me to battle inflation all over again, and inflation runs higher than the returns on your fixed deposits.
Real estate speculation is cumbersome. Blockchain technology is here but you cannot really run a smart contract to buy/sell any real estate within minutes. Atleast, not in India. That leaves me with little options to hedge my risk. The cautious investor in me, made it a point to save some money aside and hold it as Gold.
In the traditional sense, this implies that I have to cash out, pay a LOT of tax and then buy Gold. Losing a fair amount of my hard earned income. Tomorrow if I were to sell this Gold, then I would incur more taxes and fees before I receive what is mine.
In the cryptocurrency world I've found Vaultoro.com to be a good service to buy and hold Gold as hedge towards a crypto-market crash. With Bitcoin you can purchase Gold at Vaultoro. Over the past year or so that I've been using it, it's proven to be a safe place to store some funds for a rainy day scenario. If you haven't planned for the worst case, then trust me it's always around the corner.
I've built an emergency fund and used it up a few times before re-building it again. That's just how life is! Preparing for the worst case ensures continuity and longevity. It gives you a base to firmly stand on if there's an unexpected turn of events. I find it important to plan my personal finances very carefully and more often than not, I give it my highest priority.
Frankly, Bitcoin bubble is a hypothetical scenario, but then again so is our expectation that Bitcoin will touch $100,000 soon! Either could happen.
But for the sake of this discussion, let's go with the hypothesis that Bitcoin may crash. In such a scenario, dear readers I'd like to know how you plan on hedging your risk from a major crypto market crash. I'm sure our discussion can generate some interesting responses and we can learn from each other.
If you want to safeguard your crypto-money online, are there any better options than Gold to hedge your risk against a downward trending crypto-market? I look forward to your responses in the comments below.
I was just asked that same question this morning as a friend of mine is conscious of the fact that when Bitcoins starts to go down, it may very well drop like a bomb.
So, I couldn't help but suggest to invest into the cryptocurrencies that are the most powerful and infinitely scalable, fastest because of their Graphene base and potent because fo their adaptability, solid intelligent team and time proven. I sent her straight toward the BitShares platform, which help built Steemit, EOS, Sovereign HERO, Eristica, Stealth and so on.
Great article, very timely and of concern to many as we speak right now. Thanks a lot for this opportunity to share on this topic and the quality of your post. Namaste :)
Its all fine and good as long as you don't have a handful of major players decide one day to exit all at the same time. If you think that any of these exchanges are liquid enough you are in for a rude awakening. Lack of Liquidity is what destroyed the big banks and it will destroy these crypto exchanges as well.
Again, that is why I go with Bitshares, in order to make sure I won't have to suffer the so-called rude awakening underlying their make-up. ;)
Namaste :)
Also for stability try market pegged assets on bitshares. Hero is one, but much simpler is bitUSD. It's fully collateralized to be valued at one US Dollar (or more accurately in 2017 - one Federal Reserve Note).
To really buy gold as a hedge it's the best to hold gold as gold.
By the way: All the gold derivatives are a good example how the anti-gold forces divert money away from the physical gold market. Diminishing the pressure for price increases.
Could you elaborate a little bit on exactly how this works?
I'm curious to see others' insight on the questions you ask as I have been asking the same questions myself.
One additional question I have been pondering is if bitcoin does take a crash of titanic proportions, does that necessarily mean the other cryptos will dive too? If not, could not some of the risk be hedged by investing in a balanced portfolio of ether, litecoin, etc.?
They probably will crash too, but with different intensities.
Bitcoin nowdays kind of Works as an Index of other coins, so its movements is usually felt by the other coins.
If BTC comes down hard, then even the stronger coins like Steem will take a big hit.
Most if not all cryptos are traded against Bitcoin. BTC has a way of pulling down the whole market and it's likely that alt coins will crash. I know that Steem might as it generally gets pulled down with BTC for no fault of it's own-as it has in the past!
I agree with you! What use is wealth without peace of mind? I think were just starting to go mainstreem and all the signs are good,... but u never know in life and having regrets is far worse than missing out on just a fraction of the action!
I also wonder how best to protect myself as i dont want to have too much fiat. Definately NOT going to be getting any more ICICI prudential investments thats for
Sure!
High 😎 enjoyed the post, and I'm really glad you gave us a peek into your perception.
In my humble opinion, privacy coins are the future. When the time comes, transfer of our regular to privacy cryptos should be inevitable...
I will definitely keep your preferences on my mind, have a nice day 😊
Privacy coins have some issues, since most of day to day transactions need transparency and tracebility to be accepted on usual transactions.
They will have their place, but definetly wont be the main coins to be used on the future.
Just as you need to practice DCA (dollar cost average) when buying crypto... you need to set some DCA price milestones in which you feel comfortable selling. Don't be greedy and take profits as the price increases and sleep well at night!
if all goes to hell, you can allways come to fish with me ;)
haha! You bet! I hope to pick up a 4x4 and set it up as an expedition vehicle then go anywhere (or to the local riverbank with the fishing rod) if all goes bust! lol
lmao
get you an old diesel one. Think about how much cooking oil will be left in all the fast food restaurants. Just convert it to run on cooking oil and you'll have fuel long after all the gas is gone, lol.
You guys have the right of it, but for me, as a half disabled old granny, I'll just be waiting by the front door with an AR-15, lol
Honestly, I am only just realizing the potential of cryptos in a real way this last few weeks--as maybe I mentioned before in my other comment? I have a enough in a few currencies, due to the recent growth, that I now really have to consider how I'm going to be smart with it all--although it all came from literally nothing: it's outgrowth from Steemit and my work here, so an investment of time, but I'm also doing that already with my music for next to nothing anyway, so nothing new there!
It's such a strange thing to actually have crypto income that's of significant value (not crazy yet at all, but just real money I never expected), when I didn't even understand what bitcoin was until very recently. I'm quite late to the game. But I need to start really considering all of this. I'm planning on doing something similar to you; skimming a reasonable bit of what I need in case it crashes, while also being willing to risk for the possibility of gain and investing in what feels like real cutting-edge, world-transforming stuff.
Anyway - thanks for the great and balanced post! All I'm writing these days are 😱 kind of optimism posts because I'm just so fascinated that this stuff is real and happening. So it's good to have a realist on hand :). Xx, Kay
One personal tip: look for things that may actually be mass adopted, and is doable.
There is a lot of promisses, but few have something concrete.
At this moment i only ser ethereum, dash, ripple, steem and maybe bitshares as coins that actually have something to deliver.
Remember the internet bubble, and try to understand what made the companies that survived pass through the Dark period.
Thanks - I really appreciate the advice! Literally JUST learning right now. Ripple was convincing to me, so I did get some of that. In my reading, Cardano also seemed like a good option? Thoughts? I don't understand enough pieces just yet. Because I don't have much to invest, I'm trying to balance the projected stability of certain coins with how much I stand to gain given that I'm starting with so little; doubling or even 10xing $50 or so, while fun, isn't life-changing. One of the little wild cards taking off, however, could be!
Thanks so much for taking time to comment. I really appreciate it. Kay
I am going to learn more about the dot com bubble. I really have no clue. I'm an artist, not a techie or an economist; I've never been able to consider investing before! But I'm finding I really enjoy all of this, and feel I am learning quickly, relative to where I started.
No worries, i and also New on cryptos, and not so new with investing. But since i started to dig deeper on the financial market i found out how fascinating this world is.
I recomend that you read this book. It doesnt teach How to become billionaire, but its a good narrative that teach a lot about what not to do when you are new on the market...
Also, never believe in the easy money. All money comes from knowledge and work. What we need to learn is how the smart money work.
About Cardano, havent checked It yet. Its too many cryptos to follow.
bitUSD or bitCNY on the Bitshares DEX is by far the best way to go. Can also buy HEROs on the DEX which is like bitUSD but gives you 5% interest. Stay away from USDT and SBD.
Gain is the alternative name of risk, don't miss out this opportunity, where are probability a really grow high @firepower
I'd recommend you hedge with the Bitshares MPA (market pegged asset) Hero.
It's basically like putting your money into a savings account that earns 5% a year.
You could also choose to use bitUSD but it's inflationary and the HERO is a much better long term hold.
I would stay away from tether too, I don't trust it at all.
Learn more about HERO here.
Great conversation to have though, I'm definitely interested in hearing what others are planning to do. Thanks for the great post!