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Apr 20, 2020
Well, folks, the global quarantine is reaching past the one-month mark in most of the world, and markets are–well, weird.
Indeed, the longer that the crisis drags on, it seems that uncertainty seems to continue to grow; some estimates say that the lockdown could continue for several weeks, while others project that the coronavirus quarantine will last for months into the future. The full extent of the economic damage that the quarantine is unknown and impossible to predict.
Therefore, investors and traders in all markets are faced with an inconvenient truth: the only thing that’s constant is change; higher-than-usual volatility may be the new norm.
However, for cryptocurrency traders, the corona-related volatility may not be quite as abnormal as it is for traders in other markets. Still, Timothy Sykes, chief executive officer of Millionaire Media and author of An American Hedge Fund, told Finance Magnates that the most important thing to remember is that the current crisis is unlike any other financial crisis that may have taken place in the past.
Therefore, traders shouldn’t be doing “the same things [they]’ve been doing before,” he said. “[Traders] have to recognize that this is likely the end of an 11-year bull market. What worked in that market won’t necessarily work going forward.”
And they told me Bitcoin was a risky volatile asset...— Willy Woo (@woonomic) April 7, 2020
(Plotted in log charts so % gains/losses are proportional within each respective sparkline) pic.twitter.com/qxC1xF8cay
Instead, traders must “be open to adapting,” Syles said. “I often say, ‘adapt or perish. Don’t be a dinosaur.’…We don’t know if there will be a second or third wave of the coronavirus…We don’t know if the recovery will be ‘v-shaped’ or ‘u shaped.’”
Given the higher levels of uncertainty that the coronavirus has brought, what can crypto traders do to keep calm, carry on, and maybe even stay profitable?
For many cryptocurrency traders, however, volatility is the norm–as such, a number of them have developed strategies to treat periods of volatility and uncertainty as an opportunity.
“Volatility is traders’ best friend because they make money on price fluctuations, selling high and buying low,” said Evgen Verzun, founder of HyperSphere.AI.
“Theoretically, the more volatility is, the more money can be made, but obviously it’s the same issue with risks. That’s why traders should adapt their strategies…to the new reality. Usually, that means reducing working capital and leverage” to lower risks in times of higher volatility.”
Indeed, although “uncertainty is also a time of big opportunities,” it’s important to remember that “growth of potential profit and greed sometimes blinds traders and makes them forget about risks. That’s why it’s not the best time to trade with big leverages in times of uncertainty and recession. Risk management and awareness about potential facts that may influence the market–that’s the key.”
Still, David Waslen, chief executive and founder of HedgeTrade, also told Finance Magnates that “crypto traders, who tend to view volatility as normal, have many potential ways to stay profitable during today’s Coronavirus crisis.”
In fact, Waslen is confident that “there are ways to position [portfolios] to meet the waves of volatility, as well as earn additional crypto on the side to increase their holdings.”
Waslen suggested several strategies for weathering the storm. With regard to this crisis, in particular, he said that traders should take heed of the massive wave of liquidation that has hit crypto markets over the past several months.
How exactly can traders use this trend to their advantage? Waslen said there are two main things to consider: the fact that Bitcoin and other cryptocurrencies have been so closely correlated with assets in other, more “traditional” markets, and trading derivatives–in particular, crypto futures contracts.
However, “[…] even if you are (and would like to remain) long on Bitcoin, it’s imperative not to over-leverage since the world is changing on a daily basis,” Waslen warned. “Technical and fundamental analysis can go out the window at a moment’s notice.”
Indeed, “in recent months, we’ve seen huge dips correlating to the drops in the S&P 500 and global markets,” he said. “Cryptocurrencies don’t always follow traditional market trends, but with the devastating global economic crisis and COVID-19, even crypto traders are liquidating to cash in preparation of tougher times.”
Therefore, bullish Bitcoin traders should be prepared to change their mindsets: “if [traders have] been long Bitcoin and they see huge sell-offs initiated by fears of economic collapse, they may want to respect the current trend, switch sides and short Bitcoin.”
Indeed, Jose Llisteri, co-founder and chief product officer of cryptocurrency derivatives exchange Interdax, also told Finance Magnates that “crypto traders can use derivatives to stay profitable in volatile markets by going long or by being able to profit from falling markets by going short.”
And if not for outright profit, Llisteri explained that “traders can also use derivatives for hedging.”
“By going short on BTC-USD, they can reduce their downside risk from HODLing,” he said. “[This] is effectively a way to reduce exposure to BTC and increase exposure to USD, but without actually having to sell your coins.”
Despite the potential opportunities for profit, however, the extremity of the circumstances in many financial markets around the globe at this particular moment in time–not to mention the bizarre set of life circumstances that most of us have found ourselves in all of a sudden–may be causing investors to be acting with a bit more emotion than usual.
Therefore, according to David Waslen, it’s particularly important at this moment in history that “traders should not let fear and anxiety drive their trading activities.”
Indeed, “preparing for ultra volatile times by proactively determining trading psychology can go a long way in helping traders stay calm and profitable during a crisis,” Waslen said in an email to Finance Magnates.
However, being aware of the fact that other traders in the space may be overdriven by fear could give savvy traders a leg up. Therefore, “the Fear and Greed Index is a great indicator of market opportunities for traders,” Waslen said.
“In the traditional sense, a lot of fear will drive stock prices low, and in times of greed, prices are driven high. It goes the same for crypto investments; when fear is high, it’s an indicator for buying opportunities. When greed is high, everyone is buying, and prices are driven up.”
Therefore, “looking at the Fear and Greed Index for a certain cryptocurrency can help you determine the best buying times.”
Bitcoin Fear and Greed Index is 11 - Extreme Fear pic.twitter.com/1F2I6qbnBc— Bitcoin Fear and Greed Index (@BitcoinFear) April 14, 2020
At the same time, however, vigilance and the ability to act quickly may be more important than ever: “using the cycles to your advantage is the main idea when uncertainty is high,” he explained.
Therefore, this “may be the right time to make faster moves, respect the trend, go short, and exit quickly if you’re in a losing trade,” Waslen explained.
Timothy Sykes also suggested that time is of the essence: “the number one tool you could have is being nimble,” he said.
“A few years ago, we wouldn’t have been able to get in and out quickly or cheaply,” he said. However, now, “a lot of brokers are moving to free trading commissions.”
Sykes believes that this is the time to take advantage of these commission-free trades: “you can go in and out. You don’t have to go all-in, you don’t have to buy and hold, you don’t have to stay stuck to one conclusion or thesis,” he said.
Indeed, “[traders] have to adapt and recognize this is a different time,” he said. “A lot of people just go down with the ship and try and figure out what went wrong.”
If being quick isn’t an option, however, there’s always ‘hodling’: a term that simply describes the act of buying and holding onto cryptocurrency for an extended period of time.
However, Waslen said that even hodlers should proceed with caution throughout the coronavirus: “as part of an overall strategy, HODLing assets may net gains in the long haul,” Waslen said. “But during times of crisis, there are more opportunities for traders to profit by trading trends and cycles.”
“One example of buying and HODLing during a crisis might be entering a position on a cryptocurrency that has just experienced a large drop. The low price can potentially result in significant gains. That being said, it’s impossible to find the true bottom, so making an educated investment and holding for a long period of time may do very well. Just be prepared to stomach some turmoil and perhaps be prepared to dollar cost average.”
Timothy Sykes also said that beyond crypto, “buying and holding of stocks may be a good strategy, but maybe alter it to buying and holding of cash, or gold, or euros.”
In other words, “stay liquid.”
Though many in the cryptocurrency industry are particularly wary of the potential for USD inflation at the moment, Sykes argues that “cash is also an asset” that should be used carefully during this time.
“A lot of people want to invest in something, but they forget you can stay liquid and perhaps wait a few days or a few weeks,” he said. “This whole crash has happened for the past few weeks and a lot of top commentators and top profile managers mistakenly said that ‘cash [is] trash.’”
However, “this is what is key to understand,” he said. “Individuals are not like hedge funds or mutual funds. You don’t have to stay fully invested at all times.”
However, if trading or even holding onto cryptocurrency simply seems too stressful or dangerous at the moment, Waslen suggested that this may be a good time to look into other methods of earning through cryptocurrencies.
“Unlike traditional stock markets, the crypto industry provides numerous ways for traders to earn cryptocurrencies,” he said. “They can Earn crypto playing video games, making price predictions on a platform like HedgeTrade, and even by simply staking coins and earning interest.”
Indeed, “these avenues of earning should be taken advantage of especially now when prices are low, and volatility is high. It’s a great way to hedge during a crisis like Coronavirus; no one really knows what will happen, but earning extra crypto has no downsides.”
Jose Llisteri also pointed out that, for investors who have the means, “arbitrage can also be more profitable in times of high volatility as quotes for different exchanges may vary by higher amounts.
“Scalpers, who enter many trades over very short time periods, also benefit from fast-moving markets as there are more opportunities,” he said.
What are your coronavirus trading strategies? Let us know in the comments below. None of the content contained in this article constitutes investment advice.