How to wisely invest in the volatile cryptocurrency stock market

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2017 ushered in a new swarm of investors in the cryptocurrency markets and, according to contributing Forbes writer Andrew Arnold, 2018 will likely perpetuate the trend.

The cryptocurrency investment surge last year was driven largely by millennials. 

During November of last year, Bitcoin made a notable rise above 6 percent during the first week (as much as $7,545). This increase contributed to the rising value of the cryptocurrency market as a whole, above $200 billion. Considering the gains of 15 percent for the S&P 500 Index looked unimpressive against the 600 percent increase of Bitcoin over the course of 2017, millennials must have been intrigued by the potential of this technological asset.

One survey revealed 30% of investors ages 18-34 prefer investments in owning Bitcoin over stocks or bonds. It’s worth noting that 42% of millennials are familiar with Bitcoin whereas 15% of investors ages 65 or older are aware of cryptocurrency. This gap is expected to close during 2018 as institutional investors join the wave of interest in digital assets.

As the realities of supply and demand issues affect Bitcoin prices, how do you make wise investments in cryptocurrency?

Investors are most likely going to continue to trade Bitcoin cryptocurrencies as 2018 progresses (to learn more about why Bitcoin remains competitive in the market, read Why Bitcoin Could Hit $20,000 In 2018). 

However, Bitcoin faces supply and demand complications forcing a situation in which prices are high and expected to increase. Co-founder of CoinFi, Timothy Tam, was noted as having said to Forbes.com, “There’s limited supply because, aside the fact that there will only ever be 21 million Bitcoins in circulation, most of the holders of Bitcoin are long terms holders. The demand on the other hand keeps soaring.”

Tam offers three strategies for making smart investments in the volatile, but, potentially profitable market of cryptocurrency.

Firstly, Tam recommends investors remain vigilant of “bots” used by those who are more clever than dignified to artificially raise coin prices to influence the market.

Tam was noted as having said, “In 2017, Neo – a Chinese alternative to Ethereum – went from $34 to $3.74 in a matter of seconds, before returning on $34 mark. Trading bots artificially caused the price dip, which resulted in a flash-crash for a number of investors, while the organizing party largely benefited from this.”

Good advice to avoid these bots; however, identifying a bot is trickier than it sounds. Tam explained investors in cryptocurrency must monitor both volume and price momentum by watching the trading patterns. Alternatively, there are cryptocurrency businesses specializing in monitoring trading patterns on your behalf.

 

Aside from avoiding “bots,” Tam suggests resisting the urge of following the “new coin hype” and overtrading cryptocurrency.

Not buying into every new coin out of a “fear of missing out” should convert into JOMO – the “joy of missing out” on mishandling your investment. A price surge for a new coin does not automatically render a liquid asset (and might, instead, just indicate a “bot” at work).

Another common trap for new and seasoned investors alike is immediately selling coins due to a marginal price increase of 15-20 percent. This trading behavior may ultimately cut short your future gains. It’s easy to overlook the fact that overtrading tends to add up in exchange fees.

As with all investments, whether or not the asset is Bitcoin or other form of cryptocurrency, individual investors must assess risk tolerance.

Setting a “stop-loss level,” helps you avoid financial collapses and promotes peace of mind. This number can act as a virtual compass for compiling your digital asset portfolio.

Tam recommends, “You should keep in mind the price correlation between Bitcoin and most Altcoins to account for volatile market conditions. What we noticed at ConFi is that bitcoin and the majority of other coins have an inverse relationship in their value. Once there’s a dip in the bitcoin price, everyone rushes into buying other coins and vice versa, This volatility can cause serious losses for inexperienced investors.”

Review your trading strategy daily and look for the market signals for insights on your next move.

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