Being the most valued cryptocurrency of all, bitcoin is under pressure at the moment. The concerns over use cases and recent news led to a steep fall in price. At the same time, investors are optimistic about the future, with some preferring to keep the asset for a long time. HODLers are convinced that bitcoin will reach $100,000 within the next five years despite the fluctuations and changing environment. Yet, being in the industry for quite a long time, I saw many other approaches that bring way more gains than keeping the top cryptocurrency intact. Current market options protect investors from high volatility and offer a more thoughtful way to manage the asset.
Why Bitcoin is volatile
Bitcoin emerged in 2008, and only 13 years have passed since then. Thirteen years is nothing for the financial world, and we are still at the beginning stage. That is why governments worldwide do not have a unified regulation policy over bitcoin, and orthodox financial institutions are still reluctant to accept it, despite many claiming to do so in the near future. Major banks like JP Morgan or Goldman Sachs have been analyzing the crypto market for years and yet didn’t come to a final conclusion. Part of the reason lies in misunderstanding the end goal of bitcoin. Yes, it has an extensive user base and lots of fans around the globe, yet it has what fiat currency doesn’t: Anonymity.
Anonymity is good for people but bad for business, as there is simply no way to track transactions or know who made them. That’s a blessing and a curse at the same time. For banks, anonymity is a burden. After the Panama Papers case, we saw the beginning of the de-anonymity of bank accounts and private entities, and that’s when Bitcoin gained traction.
That creates a challenging environment, but I am confident that Bitcoin will find its way into the digital vaults of every major bank on the planet, but it will take some time to get there. After all, some investors prefer to use regulated exchanges like Kraken or Binance US to remain in the legal field.
Given all of this, we can say that bitcoin is on track to become recognized as a valuable asset in the conservative financial world. Yet, it won’t happen tomorrow, and we have to be patient. However, uncertainty, the relatively young age of bitcoin, and the absence of proper regulations create high volatility. You won’t find a company stock that can rise ten or more times within a week or two and then experience a massive downfall, simply because the stock market has been around for centuries. All the rules have already been implemented to prevent high fluctuations. Let’s not forget about GameStop, an artificial price hike made by Redditors. The trader who called others to action lost his license and is under investigation. Yet, when this happens to doge, no government steps in to punish the instigators.
Smart way of investing
When it comes to investing, many newcomers and even veterans think about a simple process made of two iterations: Buy cheap and sell high. We can add another layer, such as stop-loss or margin trade strategies, yet buy-sell is the most common. It works fine in the forex or stock market, but the crypto market is different. It’s like the wild west. You never know what comes next – prices can suddenly drop or spike. Therefore, my business partner and I started to look into adding a management layer. Our personal experience also played a role: Alex Faliushin, my Co-founder, had to sell his bitcoins for $100 per piece in 2016. That was unfortunate, but we managed to found a platform offering digital asset management. Today, there are several smarter ways you can manage your assets: Taking out a loan, margin trade, or depositing the cryptocurrency into an interest account.
Loans and margin trade
Currently, lending is gaining a lot of traction simply because you can exercise a margin trade during the bull market and get higher profit than by just simply holding. All you need to do is use your bitcoins as collateral and get fiat or other cryptocurrencies in exchange. You can then swap your loan amount for more bitcoins and wait for the price to rise. What’s great about it is that if, say, bitcoin’s price increases ten-fold, you can get a significant part of your collateral back and therefore have more bitcoins. However, as we know, the market can quickly turn bearish. If that happens and the value of the leading cryptocurrency drops significantly, you get to keep what you own, given that you exchanged your assets to fiat or stablecoins. In a way, it’s a smart stop-loss strategy that you can exercise.
If you prefer a conservative strategy and hate risks, then there is another way you can make your bitcoins work. For instance, you can deposit them into the interest account and receive a competitive APY, which usually ranges between 5 and 12 percent, making the terms way better than what your local bank can offer. In comparison, the average APY for banking accounts in the US is 0.07 percent. Keeping this in mind, if you are a whale, you can get high enough interest to live off that income.
There is a lot of information circulating the Internet, the recent one stating that many South American countries are planning to integrate bitcoin into their financial systems. But to be honest, I would prefer to wait and see an actual adoption before jumping to conclusions. Bitcoin is very different from what financiers got used to, and I think it will take some time, more than ten years, for complete integration. The leading cryptocurrency is still undergoing evolution, and we have to keep this in mind.
As for the risks, yes, bitcoin is a risky investment but not as risky as the media portrays it. There are tools available for mitigating risks, like loans, and people will learn them over time. However, the current situation and traders’ behavior tell me that quite a few have tried lending or interest account deposits. I do not see it as an issue: The crypto industry is young, and digital asset management tools came around just a few years ago.
I am a strong believer in bitcoin and think that the positive adoption sentiment is correct. Yet, as a tech entrepreneur, I am skeptical of the timeline that some experts throw out in the media. We are right in the beginning, and that’s the main beauty of the whole thing. We have the chance to change the financial world forever for the better. Yet, we must be patient and not rush to conclusions.
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