No matter how innovative bitcoin might seem, its volatility is hindering its popularization as a global digital currency. Accordingly, we decided to see whether or not there are ways to minimize losses when bitcoin price takes a dive.
Introduction:
Since its launch in 2009, bitcoin has been increasingly attracting the attention of people all over the globe especially that the number of merchants accepting bitcoin as a payment for their goods is increasing almost exponentially. On the other hand, for others, bitcoin represents an investment tool, more or less resembling stock or commodities.
Even though the volatility of bitcoin has enabled many speculators to make descent profits throughout the past few years, it also can results in disastrous losses, especially when traders lack experience and knowledge.
We decided to dig through this issue to find out what cryptocurrency traders do to minimize their losses when bitcoin price drops, so we researched the internet and interviewed a few cryptocurrency traders to find out if a “cryptocurrency maverick” really exists!
Available Options to Minimize Losses When Bitcoin Price Declines:
We researched the internet to find options available to bitcoin investors that could enable them to minimize their losses when the market’s bears pull the price downwards. We found a few available ways to achieve this which include the following:
Bitcoin Hedging:
Hedging of fiat currencies is a special type of financial contract that is created to minimize losses caused by variations of the price of a particular currency. A hedging contract is aimed at alleviating the undesired effect of volatility of a given currency. Hedging is often used by businesses that conduct international deals to alleviate losses secondary to variability in currency exchange rates.
Hedging contracts are now available on the trading platforms of a number of cryptocurrency exchanges in the form of bitcoin-USD swap contracts. The bitcoin hedging contracts offered by Ledger X are even registered with the U.S. Commodity Futures Trading Commissions. For example, if you want to lock in today’s bitcoin price, you can buy a bitcoin hedging contract from someone who accepts to buy your coins at today’s price after 1-6 months.
Despite the fact that hedging contracts can protect bitcoin investors against price drops, it deprives them from the advantage of gaining profits when bitcoin price soars. Oppositely, hedging contracts can be indispensable for merchants who sell their merchandize for bitcoins to prevent losing their gained profits when price drops.
Bitcoin Options:
There are now many forms of bitcoin options or options-like trading tools. However, most brokers and exchanges offer binary options rather than classic call and put options contracts that you can buy and sell. Options contracts and binary options can be used to alleviate losses when bitcoin price is falling.
Bitcoin binary options can minimize your losses when bitcoin price is going down. Binary options have specific durations e.g. 15 minutes, 1 hour, 1 day, 1 week…etc, so you bet on either a rise or a drop in bitcoin price and if you win, you get paid after the option expires. BTC Oracle is one of the best platforms offering binary options and to make sure that they are really paying, I decided to test them and paying they were.
So, when a bearish trend is so obvious, you can invest in put bitcoin binary options to gain some profits to minimize your losses when bitcoin price dips.
Buying Altcoins:
The price of bitcoin and the most popular altcoins are usually inversely propostionate, i.e. when the price of bitcoin rises, the price of these altcoins drop and vice versa. Accordingly, one can buy some altcoins with part of his/her bitcoin portfolio, whenever bitcoin price soars, so that when it falls later on, the rise in altcoin prices can pay off for the price drop. I usually use 50% of my bitcoin capital to buy altcoins, mainly ethereum, monero, ethereum classic, ripple, gamecredits and others.
Conclusion:
The volatility of Bitcoin urges investors to seek ways to minimize losses when the price dips. Our research pointed us to hedging contracts, altcoin trading and binary options as appropriate trading tools that can alleviate losses
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