Its a common thought that when Bitcoin crashes, people who invested their money in Bitcoin will lose it.
So, how to profit when Bitcoin crashes and is this even possible?
When the Bitcoin market crashes, you can just hold on to your Bitcoins. You could also buy even more Bitcoins at a lower price, and sell them for a higher price later on. You can also invest in very promising Altcoins, or just sell your Bitcoins before the price crashes further. Or you might consider short-selling Bitcoin.
In this article, I am going to show you exactly how you can profit even when Bitcoin crashes, and what it takes to make money when such a scenario happens.
If you are already heavily invested in Bitcoin and dont have any money left to invest in Bitcoin, this strategy will not be suitable for you, but if you do have some money left and would like to buy low, a market crash is typically the best time to do so, as you will have the opportunity to buy very low.
So when the market normalizes again or even performs above average, you will have the opportunity to sell your Bitcoins for a much higher price.
One thing to also note is, that buying the dip is only really useful when the market is generally in a bull market. When you buy the dip in a bear market, this will not be very useful for you, since the price generally continues to go down, and will eventually fall below the dip you, where you bought it at.
While I am no magician and I cannot foresee, how the Bitcoin market will behave in the future, I think we can all agree, that since its creation, the Bitcoin market has been in a general bull market, as you can see in the picture below.
Of course, this can change in the future, but for now, buying the dip is a great option in the Bitcoinmarket, as it has always (long-term) continued to rise in price and popularity.
Now you might say, cool, but how does one actually go about timing the market and recognizing when the crash has reached its lowest end, so one can invest in Bitcoin at the right time?
And I have to tell you, that timing the market is nearly impossible since otherwise everybody would do it and get extremely rich.
But are there actually some strategies to attempt to time the market, and actually profit from buying the dip?
Strategy number one involves timing the market by buying more and more as the price continues to go down.
This means, that one would create an average buying price and the more the price goes down, the more one is investing in Bitcoin.
Another strategy is, to try to wait until the price settles and even shows some signs of recovery. Once the price has reached a bottom for a quite long period of time and is even showing signs that it could go back up again, you could try to buy it then.
This strategy is essentially trying to time the market and aim at buying at the exact right time. If you know to spot the correct signs that Bitcoins price is going to go back up soon, you can use this strategy to buy the dip exactly at its bottom.
The last strategy to buying the dip I am going to share with you today involves setting buy-orders at prices that are lower than the current Bitcoin price. You can choose how low you would like to set your buy-orders based on historical support levels, or also psychological levels, as the price of Bitcoin tends to often reach the bottom at these points.
Now that you know about how to profit directly from Bitcoin, even when Bitcoin crashes, I would like to share with you some ways that you can use to profit in the Cryptocurrency market in general, by just investing in other Altcoins.
The hard part about this method is, that you must choose Altcoins that will go up in price independently from the price of Bitcoin.
In the Cryptocurrency market, this is really hard to do, as most Altcoins (especially the popular ones) follow the price of Bitcoin.
So, to make a profit when Bitcoin is crashing, you need to invest in rather small Cryptocurrencies, that arent big, and therefore have lots of room to grow and arent as affected by the price of Bitcoin as much as other popular Altcoins.
The question is: How do you find strong and reputable, yet not so big, Altcoins that will go up in value no matter where Bitcoin goes because they have a strong foundation and lots of room to grow?
This is the thing that sets the good investors apart from the bad ones.
If you are interested in learning how to discover new and fresh Cryptocurrencies, I recommend readingthis comprehensive guideon the subject.
But once you discovered them, how do you actually evaluate each Altcoin?
First and foremost, you should evaluate the idea of the Cryptocurrency. Is the Altcoins trying to solve a real-world problem and deliver real value, that will be appreciated by lots of people?
Its always important for a Cryptocurrency to have a clear vision, of what they are trying to solve, to move forward effectively.
Also look at how the Cryptocurrency will be distributed. Will there be an ICO? Are there are any bonuses if you buy early, etc..?
Get informed on how the Cryptocurrency will be distributed to make the right decision on where to actually get it.
In case the Cryptocurrency is already listed on reputable exchanges, it means that it has already shown some strength and will likely continue to thrive in the future if the other aspects of the Cryptocurrency are great as well. Quite frankly, for most new Cryptocurrencies, this will most likely not be the case, which doesnt mean they are bad to buy, but just that they are very young.
Its also important to educate yourself on the technical details of any Cryptocurrency, like what Blockchain it is built on, or if the team behind the Cryptocurrency is developing their own Blockchain.
Its important to understand the technical capabilities of the Cryptocurrency you are willing to invest in, in order to see if everything is alright from a technical standpoint. This also includes reading the whitepaper and understanding the technical aspects of the certain Cryptocurrency you are willing to invest your hard-earned money in.
Another important factor is to consider the team behind a certain Cryptocurrency, as you will want to see if the developers are open about their accomplishments (and setbacks!) and are really putting their heart and soul into making the Cryptocurrency as phenomenal as possible.
And the last important thing I am going to mention here, which you should consider when investing in Cryptocurrencies, is the community behind each Cryptocurrency. If the community is supportive and really cares about all the problems the Cryptocurrency will solve in the future, this is a perfect sign.
Pro tip: Be cautious if the community of a Cryptocurrency is only focused on making money!
Probably, the simplest strategy when dealing with a Bitcoin crash is just do NOTHING!
This behavior is, in the Cryptocurrency community, also referred to as HODL which stands forHoldOn forDearLife and is implying to just hold on to Bitcoin over a long period of time, no matter if there is a crash or not.
You maybe have heard the saying, that when you dont sell you actually havent lost anything.
To me, this statement is partially true. If you are holding an asset like Bitcoin, which, I think, will have many more real-world use cases in the future, and will, therefore, most likely go up in value long-term, then just HODLing it is probably a reasonable idea, as the price of Bitcoin will hopefully (probably) go up in the future, as Bitcoin will probably (hopefully) be of great value to lots of people in the future.
And sometimes, really the best thing to do in a Bitcoin market crash is to just hold on to your Bitcoinsand do nothing.
This method might sound stupid, but I would like to remind you that most Bitcoin millionaires (and even Bitcoin billionaires) have made it so far financially, because they invested in Bitcoin very early on, and have HODLed Bitcoin ever since.
Those people didnt care about the market going up or down in the short-term since they believed that Bitcoin will become really big over a long period of time.
Now, I really cant say how high Bitcoin will go in the future, and if you will become a Bitcoin millionaire or even billionaire if you invest in Bitcoin today, since already a lot of people are involved in Bitcoin, and there isnt that much potential for future growth, as there was in the first couple years of Bitcoin.
However, dont get scared by this FUD (Fear,Uncertainty, andDoubt) as I really believe that Bitcoin is still far off from its true real-world value, based on the use cases it can potentially have all around the world. This means there is still a lot of room for Bitcoin to grow.
So, always keep in mind that you doing nothing wrong if you do nothing in a Bitcoin crash, and just hold onto your Bitcoins, and hope that they will get up again and even reach new heights.
Quite the opposite: HODLing is a strategy that has already made lots of people really, really rich in the Cryptocurrency-space.
This method of dealing with a Bitcoin crash is actually quite similar to the first method.
The only difference is, that here you are trying to exit the market. And when the market is very low, you can then again enter it and by selling higher than you bought, you can make some profits.
With this strategy, you actually have the opposite problem as with the first strategy, where you try to buy low.
When you are using the first method, you are hoping to buy when the Bitcoin price has reached its bottom. But here, you are afraid of selling at the bottom of the dip, as this means that you sold your Bitcoins at the worst time possible, meaning at the lowest price.
Now the big question is, how do you know that the price is NOT at the all-time bottom at the moment and that it will go down significantly further, which will be beneficial to you since you can then buy Bitcoin at those lower prices.
Honestly, I really would use the strategies I told you about in the first method, in reverse.
You can look if the Bitcoin price has been down consistently for a longer period of time and if it is showing some signs that it will recover. In that scenario, you should not sell your Bitcoins at that point, as its an indicator, that it has reached its bottom.
If you, on the other hand, see Bitcoin falling down, and there isnt any kind of recovery in sight, then you could dare the move and sell your Bitcoins.
Once you then see some indicators of the price recovering, you can buy Bitcoin again and you have made some profits in that endeavor.
The other method, as already described above is, to look at the historical support levels and psychological levels of Bitcoin.
If the price of Bitcoin is still high and not anywhere near these boundaries, then you can be quite confident that you arent at the bottom of the dip, but rather that Bitcoin still has plenty of room to go down, which means that you can sell now, and if the price of Bitcoins is low after some time, you can buy it back again.
The last method I am going to show you has to do with shorting bitcoin.
You can short Bitcoins on several exchanges, and you can use it to make money when the Bitcoin price is going down, like in a Bitcoin crash.
If you arent familiar with how shorting works, I will explain it to you here.
Shorting Bitcoins means, that you borrow Bitcoins from an exchange/broker, and then return the Bitcoins after some while.
Lets say, the price of Bitcoin is 1000 US Dollars. At that price, you decide to short Bitcoin, meaning you borrow one Bitcoin from an exchange
A short seller would then immediately sell the Bitcoin at market price, which means that he now owes the broker one Bitcoin, but he/she has just sold that Bitcoin to US Dollars.
Because they immediately sold the Bitcoin, they dont have the original borrowed Bitcoin anymore, but rather they have the cash, which they got from selling the borrowed Bitcoin.
In our hypothetical scenario, after some time, the Bitcoin price drops to 500 US Dollars. Then you buy back one Bitcoin for 500 US Dollars, and then you still need to return that Bitcoin to the broker, which you then do.
And thats really all there is to it. If you sold the Bitcoin for 1000 US Dollars and then buy it back for 500 US Dollars, you just made 500 US Dollars, as you just had to return the original Bitcoin, but the difference in price is yours to keep.
On the other hand, if the Bitcoin price goes up, you still need to return the Bitcoin to the broker, so you will need to buy the Bitcoin back at a higher price than you sold it for, which means that you will have lost money on that short sell.
To sum it up, short-selling Bitcoin is a great technique that you can use if you are confident that the market is going to continue to fall, and you think that you will be able to buy Bitcoinback at a lower price.
Now you might wonder where to get started short selling Bitcoin and on which exchanges it is possible to do so?
Some of the most popular exchanges on which you can short-sell Bitcoin areKrakenCoinbase Pro(previously called GDAX),Bitfinex, andCEX.io.
There are, of course, also other exchanges you can use to short-sell Bitcoin, but these are just the most popular ones.
All in all, I would like to tell you that you really do not have to think that when a Bitcoin crash happens there is no way to profit from it, as there are many ways to do exactly that, as I showed you in this article.
Of course, the easiest way to not lose money is to just HODL on to your Bitcoins, and not sell them. (And this could be indeed very profitable in the long-term)
But you can also try to buy even more Bitcoins, when the price is low, or sell your Bitcoins when the price hasnt crashed fully yet, and then maybe buy the Bitcoins back, once the market has really dipped and the prices are lower than when you sold them.
There is also the option to short-sell Bitcoin, which I would only recommend when you are confident that the price of Bitcoin will go down so that you can make a profit from short-selling Bitcoin.
And of course, there is always the option to invest in different, lesser-known, Cryptocurrencies that arent so tightly attached to Bitcoins price, that have a solid foundation and lots of room to grow in the future.
Now I would like to turn it over to you: How do you plan to act, when the Bitcoin market crashes?
I am interested to hear about how you deal with that situation.
Thanks for reading all the way to the end of this article, and I wish you an awesome day!
I am all about helping you understand the Crypto space better and really get to know the ins and outs of this exciting world of Cryptocurrencies. I have been in the Crypto space for a couple of years now and while I am not a professor on this subject, I love researching things, learning about this awesome technology and, of course, sharing my knowledge with you!
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