This article How to Avoid Bubbles and Trade Safely gives the reader some insight on how one can avoid speculative behaviours of the crypto market and make gains consistently and avoiding the painful drops.
In an emerging segment like cryptocurrencies, there is little doubt that many people will be drawn into the profits from the technology. These people have seen and heard the stories of people who have become millionaires through holding on to Bitcoin, and now they want in on the party.
They’ve heard how Ethereum (ETH) has gone from their ICO price sub-dollar to almost US$1,300 at its January top.
Cryptocurrencies are here to stay, no doubt. There are haters of cryptos, but I’m a believer. I believe that Cryptos will disrupt the exchange of value over the internet and practically the whole of commerce as well. In the future, it is not hard to see how cross-border transactions can be done quickly and easily via Bitcoin instead of the traditional SWIFT method.
Recently, I received a sum of money from a customer in Australia. The outgoing bank took AUD25, the incoming back took S$10, and the exchange rate ate up S$400! What’s more the transaction took just over 24 hours to get through? With Bitcoin there won’t be such nonsense – the same value could be transferred in less than an hour without hefty charges!
That said, we can safely assume that cryptos are going to be around for a long time to come. However, the market speculation is birth from the greed of people who are looking for a quick profit. Many people in the forums and the telegram chats are asking the ‘When moon?’ and ‘When Lambo’ questions, pushing the developers to be faster with their adoption and developments.
This is obviously speculative behaviour and naturally leads to bubbles. We’ve seen bubbles in Bitcoin that have burst, again and again, we’ve seen them in other altcoins like Steemit, Zcash, Zclassic, Ripple and more. Nothing wrong with these coins – it had just drawn in people with this mindset that they might make it rich quickly.
The Crypto market, in general, went through a big burst as Bitcoin (BTC) went from US$19,500 all the way down to sub-US$ 6,000. While in percentage terms this was not the biggest drop in BTC, it has done worse before… but because of the number of people affected, this was the most significant to date.
So how can you safely avoid these bubble behaviours? How can you avoid the pain that is associated with these. Here are three simple tips to do so:
Don’t chase the ‘next Bitcoin’
Let’s be straight. Bitcoin is king. To create the next Bitcoin, you have to be completely anonymous and Bitcoin is the most decentralized crypto without a centralized government. All the rest of the cryptos have a CEO, development team, etc. When someone touts you that his currency will replace Bitcoin, be VERY skeptical. It is not impossible, but the odds of it happening are really low. Bitcoin has already established itself as king in the cryptosphere over its 10 years of life – it is unlikely some new coin will replace it, at least in the near future.
What’s more, this person who touts themselves as the next Bitcoin is likely to just want your Bitcoin. That’s probably their motivation – and you have to be really careful and do your due diligence before you even buy 1/2 of what he’s saying.
Watch Twitter Sentiment
Twitter is a unique place in the world of crypto – and it gives you an idea about people’s sentiment about the coin. Remember, be fearful when others are greedy and be greedy when others are fearful.
Learn to read the signs and sentiment of people on twitter to get a gauge of the market sentiment. Twitter probably represents about 10% of the crypto market so while it is not a complete sample, it is a good place to sense things.
I used these sentiments to get out of Ripple (XRP) and NXT at a good price before their dumps. When I sensed that there was too much FOMO behaviour on Twitter, or people speculating that Ripple would reach a ridiculous number, I knew it was time to grab my bags and head for the exit.
It was also in the December period that I saw many people on Facebook talking about their crypto gains, like experts. And these people did not even touch cryptos until late last year! The fact that a newbie was telling you about how expert they were is a sign that it was time to leave the markets!
If everyone, even the newbies are making money, it tells you that something is not right with the markets and it is time to leave.
It’s not the end, despite what they say
If somehow unfortunately, you end up becoming a bagholder, then it might be time to ask yourself why are you even doing this in the first place. Are you in here because you want a quick buck, or have you studied the technology behind Bitcoin and the altcoin that you’re holding on to?
I came into the markets because I was fascinated by the blockchain technology. I saw how it could potentially disrupt everything as we knew it, and that’s how I came on board. Although the returns were crazy for a period, when it all came crashing down, I reminded myself that blockchain technology is just beginning.
Like the dot-com, it will take longer than most people think it will, but when it does, it will change the world just like the internet has done.
So, if you’re a bagholder, sure. Hold your bags, but make sure you study the coin’s fundamentals before you blindly hold any bag. Most coins out there are crap and likely won’t last a few years – but if you’re holding Bitcoin, learn your lesson about not chasing returns and then just wait for the next wave of adoption and change.
So, trade safely and avoid the bubbles. Avoid becoming the person who buys the coin and the high and sells at the bottom. So many people have already done that – so make sure you aren’t one of them!
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