Experts in investment banking and portfolio management will often give unexpected advice. One of the most surprising, but infinitely useful tips, is that a lull in any market isn’t always a bad thing. In late 2017, crypto markets rose exponentially. As in traditional markets, this activity in the crypto market is full of causation and is extremely cyclical.
The first time bitcoin (BTC) and other digital coins rose in value, more and more investors – both experienced and unexperienced – began to hop on the crypto bandwagon. When coin prices began to slump in early 2018 – the beginning of the bear market – panic ensued and crypto was sold below its original purchase price, resulting in financial losses and disillusionment in the new digital economy.
It’s extremely difficult to predict what 2019 will hold for cryptocurrency prices. No matter what happens, there are concrete steps for investors to follow to ensure they reap the best possible rewards from any situation – and which may help them to avoid a repeat of 2018’s turbulent market.
If an investor researches an asset prior to investing, and is confident in that asset’s strength and potential, then they can take an informed bet that any price drop will be temporary and that its value will rise again. Wise portfolio managers will often advise against buying an asset when it is soaring, but rather to buy it during obviously temporary setbacks, in both traditional and digital markets. That way, when the inevitable rise does come, the informed investor will have bought assets cheaply with an increased return on investment (ROI).
For example, one of the most common reasons for a fall in stock price is a reputational crisis. If a Silicon Valley tech giant with a powerful stock and market command has a data breach, the stock may fall in value. But history has proven that this is most likely temporary. As soon as the company handles the issue, the stock will begin to rise again over time – assuming there are no outstanding issues or factors of influence and that the stock was sufficiently strong before the crisis.
Those who buy in the temporary slump will potentially see the most revenue. Markets of all kinds have extreme changeability, and those who want to use this as an opportunity, rather than a deterrent, should buy low and hold.
When prices slump, uninformed investors write off the possibilities of any returns. Seasoned experts, however, see this as an opportunity. Crypto prices in 2019 may fall again, but modern technology can allow investors to use any price drops as a way to create value. Specifically, arbitrage trading buys assets on exchanges where prices are low, and sells where prices are high, all at rapid speed.
This allows for potentially high returns with minimal effort from the investor themselves, as automated portfolio management tools work independently using this advanced technology. Arbitrage is based on taking advantage of turbulent and rapidly changing markets, making it perfect for crypto and showing that volatility isn’t always a bad thing. Look for tools and platforms that utilise this method of trading.
Diversify the crypto portfolio
The crypto market slumps of 2018 have shown everyone in the industry that digital assets are not simply designed as ‘get-rich-quick’ schemes. Investments in crypto should be just as researched and cautiously approached as those in traditional markets. Cryptocurrencies should not replace traditional assets. Any expert in portfolio management will advise that the strongest portfolio is a diverse portfolio. The ability to rely on assets held in a variety of industries, for when one industry or sector fails, is essential. Creating an equal portfolio, complete with crypto and traditional assets, is the smartest move to protect portfolios from a turbulent market.
As an industry, we are entering 2019 with a great deal of speculation around the future of cryptocurrency. Investors can take active steps and change their behaviour to minimise losses going forward. Ultimately, what remains undeniable is the strong future of real-world blockchain technology applications. We are already seeing the myriad of solutions this technology can provide and the market gaps that it can fill; this will continue to provide a valid base for the future of crypto.
Investors looking to join this space in the coming year need to do their due diligence and look for projects that solve real-world problems. Before investing in any blockchain-based project in 2019, ask yourself: is the idea going to fill a market gap, have you leveraged the best technology available to ensure you’ll get returns, will this diversify your portfolio, and will there be a better time to buy this asset in the near future.
After that, listen to any extra advice from crypto portfolio management experts, listen to your gut, and combine a healthy dose of due diligence with a dash of conviction. There’s no better mix than that.
Disclaimer: Please consult your financial advisor before investing in any asset class.
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