Sometimes, periods of extreme greed in markets can be a forewarning of a possible major dip or even crash looming on the horizon. Whilst writing this article, the only two coins in the top ten of the cryptocurrency market, currently in the green are Ethereum and Dogecoin. It appears that cryptocurrency investors are chasing the coins that have the most immediate chance of near term, rapid gains.
Ethereum has the monopoly on the smart contract market and is inching its way closer to implementing its proof of stake protocol change dubbed Ethereum 2.0. This has investors flocking to it and they have been rewarded for taking the risk as Ethereum continues to shatter its all time highs with no stopping in sight.
Dogecoin which was originally created as a joke and named after the creator’s dog has skyrocketed and continues to do so as of the time of writing of this article. Elon Musk who has been a vocal supporter of Dogecoin and has tweeted numerous times on twitter advocating this coin has now named himself ‘The Dogefather’. The ‘Dogefather’ will be appearing on SNL this coming Saturday which might be a clue to the sudden, rapid rise in the value of Dogecoin.
Both these coins rapid rise in value recently could be the result of greed on the part of crypto investors looking for quick gains. When greed levels reach extreme levels it might be wise to look at some avenues to explore to protect and even profit in the case of a big dip or even crash in the cryptocurrency markets. Below I’ll go through a few options to protect your crypto investments and even profit from a possible dip or crash in ones cryptocurrency investments.
Decentralized finance has opened up a whole new world of investing to cryptocurrency investors. Platforms such as Nexo, BlockFi and Celsius are some of the more popular options which currently offer very attractive interest rates on stablecoins and select cryptocurrencies. If a Bitcoin or cryptocurrency investor feels the market is a little top heavy they can sell some of their holdings and convert them into a stablecoin such as USDC. They can then transfer those stablecoins to one of these DeFi platforms which are currently offering APY percentages as high as 12.5%. The strategy here would be to earn that sweet interest on a stablecoin that is relatively free of the huge volatility in cryptocurrencies and wait till more favorable market conditions present themselves.
Basically with this strategy, you are getting paid while you wait and since stablecoins are pegged to their native currency you aren’t losing value on your investment in the case of a dip or crash in the cryptocurrency universe.
Many cryptocurrencies currently offer staking rewards with very generous interest percentages. This strategy is very straightforward, you simply pick a cryptocurrency that offers staking rewards that you feel will gain value in the future and you hold it or Hodl. The only risk with this strategy is that if there is a significant dip or crash in the Bitcoin and cryptocurrency universe, your staking investment will take a hit and drop in value. If you plan to Hodl then this is a good strategy as you are getting more of your respective staking cryptocurrency while you weather the storm.
3.Shorting Cryptocurrencies or Cryptocurrency stocks
This is by far the riskiest of the strategies I mentioned so far but can be very profitable if your timing is right. Certain cryptocurrency exchanges such as Kraken allow USA cryptocurrency investors to short certain cryptocurrencies. Essentially what this means is that you place a bet that a certain cryptocurrency will drop in value within a certain time period. If you are right you can make a substantial amount of money, however if you’re wrong you can potentially lose the entire amount you bet with. The same shorting technique can be applied to stocks on the NYSE and NASDAQ that are directly linked to the cryptocurrency market. Stocks such as COIN and RIOT can be shorted in the event of a possible major dip or crash in the Bitcoin and cryptocurrency market.
This is a high risk/high reward strategy and should only be pursued by investors who are comfortable with the risks involved.
It seems that there is a high level of greed currently in the cryptocurrency universe and it makes sense to have an exit plan of where to weather a short term storm or potential bear market winter if indeed there is a major dip or crash coming. It’s impossible to predict when this may occur but always remember that it’s usually the smart and wise who run the opposite direction to where the rest of the herd is running.