Introduction
It has been almost a year since the bear market started a lot has changed since last December. Especially prices, since most of the focus around cryptocurrencies is still speculative in nature we are going to discuss how this affected the trading and how some things that worked in the past don’t work anymore.
Investing VS Trading
Cryptocurrency speculators are either investors or traders. The distinctions between the approaches to investing is mostly related to time. Investors are those who are willing to hold more for the long-term, while traders can exchange numerous cryptos lot of times in a single day.
Last year when the prices were reaching all-time highs every week it was easy to be a cryptocurrency investor — you just buy and hold. Nowaday’s if you held your Bitcoin through the year you as an investor would see a decrease of 80% measured for the January’s high at $171441 to the current levels on which the crypto is being traded which is at $3368.
Those like me who actively traded are now unable as the price are constantly falling so there isn’t any opportunity for making money and every purchase of the cryptocurrency for flipping it rather risking in the bear market
The number one strategy I used last year from September until late November was scalping. I used to work the order book and put in large quantities and make profits on smaller moves. That would be a very risky strategy now as the market is constantly falling, so making some small amount of Bitcoin when it’s price is depreciating while risking all of the capital would be a dumb move.
Also, last year when the prices were growing exponentially one way to grow your Bitcoin holding was trough trading altcoin pairs. You would simply find a cheap and fresh altcoin purchase it during an ICO or when it gets listed on the exchange and wait a month or so before the explosion and voila, you have made 300% more Bitcoin.
In a way, altcoin was used as leverage to increase the profits made from Bitcoin’s price in itself gaining in value. Now if you were to buy altcoin you would only use the leverage at your disadvantage and see your portfolio valuation diminish even faster.
ICOs
Last year most of the investing was in the ICOs as the market confidence was strong and the hype around blockchain technology reached the mania stage with everyone who previously hasn’t even owned any cryptos jumping aboard the ICO wagon.
ICO’s were a great gateway for those who haven’t invested earlier into Bitcoin for a chance to see some huge profits in a short period of time and catch up to Bitcoin’s gains.
But now as many ICO’s failed to either deliver the promises made last year by the development team and written in the roadmap, many of the altcoins are going to 0 and many ICO’s have turned out to be either a complete scam or a complete failure
Earnst&Young recently published an update on their top 141 ICO reviews of December last year which is where 87% of the capital inflowed at that period from the total capital invested in the ICO’s that month. The results paint a grim picture:
Regarding the development of the idea, only 29% of the total of 141 ICO project have made a prototype product for the which the money was raised.
As for the return on investment 86% of the projects are currently below their purchasing price, 30% have lost quite a lot in value and an average loss from 1 of January of 2018 if the investor held the portfolio of those ICO’s would be around 66%.
This adds the turmoil on to the current bearish market sentiment and the market confidence diminishes by the day.
Current Market
The current market conditions could be summed up in one word — bearish. From January the prices have been nothing but falling with a small recovery now and then but mostly with periods of sideways movement and low volatility.
This makes it hard to employ the same strategies that worked really well in the past. Those who failed to readapt to the current market conditions payed a tremendous price — literally.
Also, I have noticed that every little correction to the upside and or a small run-up is praised as the next “bull run”. This is out of misery
You as a trader shouldn’t be cheering for the price to go up. You should be able to make money no matter the market conditions. This is why new strategies should be applied.
Making money in the bear market and period of low volatility
Considering that the current market conditions which are bearish, with periods of low volatility the only possible solution to make money is through selling the crypto short.
This is done through the crypto exchange that offers that service which is called margin trading or uses a forex broker that has crypto pairs CFD’s. For those who aren’t familiar with how short selling, its a process of selling the crypto at first at a higher price (presumably the price is going down), and buying it later at a lower price, making money on the difference made by the trade.
Short-selling can only be done through a margin account as the process of borrowing is necessary for this to work, as you are first borrowing the asset and immediately selling it to the market.
The amount of your investment in relation to the amount of the borrowed funds is called leverage and it serves to increase your profitability, so while you are able to short the market you are also able to maximize your profits.
This is especially useful in time on low volatility when the price isn’t moving as much so higher leverage is used to make money on smaller percentage moves.
On the chart above you can see that the Bitcoin’s price bearly moved by 5% up and down from the mid-range at $6596 which lasted from 8th September to 14th of November.
This is why Prime XBT is set to launch the new trading platform by the end of December on which you can profit while the market is falling through selling the market short. This can also serve not only to profit but also to hedge against your potential losses.
Also as the market is going sideways you have to enter your predetermined position entry and exit levels, which is why Prime XBT enables users to set their stop loss and take profit levels as well of course your leverage and position size.
While we are on the subject on leverage, many existing exchanges that are offering a service of margin trading offer only up to 1:3 leverage which isn’t much for the 5% increase that was seen on the daily chart above. Prime XBT is set to provide its clients up to 1:100 leverage!
This would mean that in the above example of low volatility when the price of Bitcoin was at $6504 and increased only to $6773 which is an increase of 4.13%, with the power of 1:100 you would have made 431% profit. Yes, that right.
Conclusion
There is still an opportunity to make some sound money in the bear market. The number one thing that separates good traders from bad traders is the ability to adapt. Those who aren’t able to do so get crushed and lose everything, but those who adapt and recalibrate get rewarded.
If you want to be profitable in the bear market you have to short-sell and follow the trend. Trying to wait and catch the bottom can also be dangerous as there a saying — don’t try to catch a falling knife (it might cut your fingers off).