Are you currently staying far away from the volatility and plummeting prices of the current crypto-market? It’s a natural reaction, especially in such unpredictable times. The media draws the public attention towards the negatives, but experienced investors see a downturn in any market for what it really is: a great opportunity.
Sure, many lose a lot of money during the panic of a cryptocurrency crash or sell off. But, those that know what they are doing have the range of tools needed to make big profits during this time. Here are five of the best ways to turn a profit during cryptocurrency market turbulence, and how you can easily leverage all of them at once in order to make the most out of the current market opportunities.
Strategy 1: Arbitrage
Arbitrage is the process of buying then immediately selling something for a profit. This is possible when there are price differences between different marketplaces. For example, buying certain DVDs at your local store for $10 only to sell them online for $20 each, doubling your money in the process. In our case, it’s buying cryptocurrency on one exchange and then immediately selling it at another. Arbitrage is based on exploiting market inefficiencies and is popular in all kinds of markets, including the stock and FOREX markets.
The crypto world is a uniquely perfect environment for arbitrage. As William Belk argues here, the combination of it’s distributed nature, regulation, security, availability, and anonymity factors means that the marketplace has many inefficiencies, and that “arbitrage opportunities will continue indefinitely.” For example, some markets pay a premium for security, geographical location, or simply because they don’t know they can get it cheaper somewhere else. In some cases, the price discrepancies across different exchanges can be as much as 43%.The crypto world is a uniquely perfect environment for arbitrage Click To Tweet
To perform cryptocurrency arbitrage, you need to find an opportunity where you can buy a cryptocurrency for less than you can sell it on another exchange (minus the fees and commission). Once you’ve found one, all you need to do is simultaneously buy Bitcoin on the lower-priced exchange and sell on the higher-priced one. It’s easy to make hundreds or even thousands of dollars in just a few seconds if you have enough funds.
Advantages: Arbitrage can be done any time there are price inefficiencies (so, pretty much always with crypto), and it has almost zero risk of losses if done correctly. You can make excellent profits whether the market is going up or down.
Downsides: Usually requires specialist arbitrage software to get started. You should have a strong technical knowledge of the different exchanges. Arbitrage trading often relies on real-time data that is accurate to the millisecond in order to do this safely. High fees on some trading platforms can squeeze your profits too.
Strategy 2: Buy the Dips and Hold
To new investors it might seem counterintuitive, but a drop in any asset’s price is a great opportunity to buy. Especially big drops. Assuming it is a strong asset, the price will go back up when the market regains confidence. This strategy even has its own abbreviation (BTFD) in the cryptocommunity.
A quick look at the Bitcoin price over the last few years reveals a strong upward trend, but also times where the price was over and undervalued. Since most buyers and sellers are regular people and not professional traders, the cryptocurrency market is extremely sensitive to media hype and news stories. When the news is good, people rush to buy overvalued cryptocurrencies. When something bad happens, they panic and sell their coins at below their true value.When something bad happens, people panic and sell their coins at below their true value Click To Tweet
This is the perfect opportunity for investors with the available funds to buy the undervalued cryptocurrencies. As a trader, you use your expertise to assess the market conditions and fundamentals to predict when the market is most undervalued and likely to make a recovery soon. Then, just make your trades and hold out during the period of fear and uncertainty, all while making a nice profit when the market returns to sanity.
Advantages: It doesn’t require any specialized high-frequency trading software. You only need to make a single trade and you don’t need to-the-millisecond accuracy. When done correctly, you’ll profit from the upward trajectory of the cryptocurrency plus the amount it was undervalued.
Downsides: This is a fundamentally long term approach, so you probably won’t see quick profits. Timing is everything, and this strategy requires an excellent understanding of market conditions as well as a cool head in times of chaos.
Strategy 3: Follow the Trend
If you think a trend will continue for a while, or if it’s too hard to predict when the price will change direction, following the trend is a more risk averse strategy. With this strategy, you trade with the trend rather than with the swings. If the market is trending up, only open long trades. If the market is falling, you only open short trades. Trend followers start trading after a trend has been established, and they exit when the trend changes. This is also called “Position Trading.”Following the trend is a more risk averse trading strategy Click To Tweet
There are a number of tools you can use to maximize profits and minimize risks, such as margin trading, leverage, and stop-loss orders. Shorting Bitcoin and other cryptocurrencies can be done in a variety of ways. Just looking at the Bitcoin price chart for early 2018, you can see that those that spotted the downward trend in mid January and made a short trade would have made 40% profits by exiting one month later.
Advantages: It’s a more risk averse strategy that works if the market is going up or down, and when the top or bottom of a market isn’t in sight.
Downsides: Crypto markets are unpredictable. You need good mechanisms in place to protect against sudden changes in price direction.
The basic idea of this strategy is, “get out until the carnage is over.” When the crypto-market is under fire, non-crypto assets will appreciate in value compared to cryptocurrencies. Moving some of your portfolio over to fiat currencies (or something else) will protect it from a declining cryptocurrency market. This is similar to how investors buy gold as a safe haven in times of stock market turbulence. When the storm is over, you can buy back your assets at a lower price. It’s always a good idea to keep a diversified portfolio.When the crypto-market is under fire, non-crypto assets will appreciate in value compared to cryptocurrencies Click To Tweet
Advantages: It’s easy to implement. Just sell your crypto assets for fiat currency or something else; you can profit even in times of crypto market decline. Also, you’ll always have funds available to buy cryptocurrencies when the price hits the bottom.
Downsides: Requires knowledge of traditional markets as well as cryptocurrencies. You also need to be actively managing your portfolio and be constantly on the ball. Poor anticipation and slow reactions will quickly eat into your profits. Complex tax implications can also be an issue for all of the active investment strategies shown above.
Strategy 5: Invest in a Tokenized Crypto Fund
If you want to profit from all of the strategies above without having to actively manage a portfolio, there is a fifth option: tokenized crypto funds.
You might be familiar with traditional investment funds. These are pools of investor capital managed by a team of professional investors. These specialists use a range of strategies, including the ones we’ve talked about, to earn returns on all of the capital within the fund. Investors in the pool benefit from having access to the skills of the professional traders, while the traders benefit from having much more capital to trade with. It’s a win-win.Through a tokenized crypto fund, investors are having access to the skills of the professional traders Click To Tweet
Up until now however, these types of funds haven’t been available to cryptocurrency investors. Due to taxes, legal compliance, impracticality, fear, and other reasons, most investment and hedge funds have limited or no exposure to the big profits that can be found in the cryptocurrency market. Investors have had to manage their blockchain assets manually. But that’s all about to change.
PentaFund is a tokenized investment fund built for the cryptocurrency market. It’s an investment vehicle bringing the huge upsides of an actively managed crypto portfolio and risk management without barriers to entry.
Active Portfolio Management
PentaFund is an actively managed fund (as opposed to passive investment funds, such as the Vanguard 500 index) made up of cryptocurrencies, blockchain assets, and traditional assets. It applies modern portfolio management principles to the world of cryptocurrencies. Arbitrage, leverage, short selling, hedging strategies, derivatives, as well as technical, fundamental, algorithmic, and trend analyses are all used to take advantage of the growth and opportunities in the crypto space.
Downside Risk Management
PentaFund has a particular emphasis on protecting investor capital during rough market conditions.
The smart selection of assets ensures the fund avoids the biggest pitfalls of the industry. Only assets with excellent fundamentals and growth potential pass the strict filtering process. Continuous review minimizes the exposure to bad assets. The portfolio is diversified across the whole blockchain industry, with different cryptocurrencies, technologies, industries, fiat currencies, and traditional assets all represented. The cryptocurrency market runs 24/7, and PentaFund ensures that the funds are protected at all times.
Easy Entry and Exit for Investors
Pentafund is a tokenized fund, making it extremely easy for investors to get in and out. To buy in and earn returns, all you need to do is buy some PentaCore (PENT) tokens and hold on to them. The tokens represent a portion of all the assets owned by the fund. To cash out, you can either sell your tokens on the open market, or redeem your tokens with the fund directly. The fund allows up to 10% of the fund’s net asset value on a quarterly basis. This is a strong guarantee of liquidity and a price floor for investors.
Standard Fee Structure
PentaFund has a fee structure similar to that of traditional investment funds:
- Base 2% annual management fee of all assets
- 20% performance fee on profits (using a high water mark)
- Additional trading fees (maximum 1% annually)
A high water mark means that performance fees are only paid on new profits, protecting investors from paying twice for the same performance.
Transparency and Engagement
Investors can get insights into the fund with the PentaView analysis platform. It’s basically an aggregation of the data regarding the investments and assets within the fund. The cryptocurrency space is constantly evolving and PentaView is a tool to keep users up-to-date. PentaView also gives investors a way to make suggestions to the PentaCore team.
Other tokenized crypto funds
There are other examples of tokenized crypto funds available. Crypto20 is an autonomously organized fund that functions like an index fund for cryptocurrencies. Token-as-a-service (TAAS) is an actively managed fund for the blockchain ecosystem. An overview of the Top-5 crypto funds can be found below:
In times of panic, experienced investors usually come out on top. With the right strategies and a cool head, it’s possible to turn a profit during all market conditions. Arbitrage, buying the bottom, following the trend, and buying up uncorrelated assets are all proven tools in a trader’s arsenal.
Tokenized crypto funds such as PentaFund are a way to benefit from all of these and more, without the legwork. Simply buying a token is enough to gain exposure to the awesome gains of the blockchain industry with the guidance and protection from the pros. Tokenized funds are one of the key products that will bring cryptocurrency into the mainstream, and the best time to get in is right now.In times of panic, experienced investors usually come out on top Click To Tweet