How Do You Profit From Crypto Volatility?

Buy and hold may not work for the long term

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Nicholas Kitonyi
Mar 31, 2021
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The cryptocurrency industry is now valued at more than $1.9 trillion. Bitcoin alone has a market cap of more than $1 trillion, yet it is still one of the most volatile assets to invest in. However, the recent rally has seen many investors overlook bitcoin's traditional volatility concerns as they continue to buy it. But based on the historical performance of the cryptocurrency market, many would argue that buying and holding for the long term may not be the best strategy.

There are alternative investment strategies that traders can use to profit from the inevitable volatility of the cryptocurrency market.

Buy and hold short term

Although bitcoin continues to demonstrate signs of high volatility, the recent bull run is an example of how some of its rallies can really pay off. Bitcoin surged from a price of $18,000 to a new historical high of about $61,749 before pulling back to the current level of $59,150.

This performance demonstrates that the pioneer cryptocurrency can deliver significant short-term profits, but you can never bet on it in the long term.

Bitcoin tends to experience rallies after positive developments in the cryptocurrency industry. The current rally is partly driven by online payments platform PayPal Inc.'s (

PYPL, Financial) move to embrace crypto late last year. The company also launched a crypto checkout service this earlier week. This ties in well with several other financial services companies and government agencies around the world that have taken the same steps.

It also appears to be benefitting from a growing phenomenon that it is a potential safe-haven option for young investors. This has boosted its popularity with other markets suffering from the adverse effects of Covid-19. Over the past eight months, bitcoin has outperformed gold, the traditional safe-haven asset.

Trade the volatility

Bitcoin's current rally has been characterized by a series of pullbacks and rebounds that completed the cycle in a higher position than the one before the pullback. However, things appear to have slowed significantly over the last six weeks with bitcoin failing to hit current historical highs. But it has continued to be highly volatile, which opened up short-term trading opportunities.

However, short-term trading is one of the riskiest strategies. The success rate is very low, which means that unless you are an expert, then you are probably better off buying and holding for the long term. Daly Young, Chief Product Officer at cryptocurrency derivatives exchange Bingbon adds "There are several ways that traders can invest in crypto. The buy and hold strategy works well in bull markets but short-term traders can still make money by capitalizing on frequent pullbacks. And now, there are effective techniques like copy trading that make this strategy easier to execute."

Investing in cryptocurrencies carries a higher risk than buying stocks and bonds. So if you add that risk exposure to the risk of short-term trading, it leaves less room for scoring wins. This is why platforms like Taiwan-based Bingbon have introduced crypto trading features that allow traders to copy the trades of industry experts.

Buy and hold indefinitely

Buying and holding is what everyone buying bitcoin is essentially doing. The level of volatility means that you could buy bitcoin with a view of selling when it hits a certain price level only to sell sooner. So you cannot really put a time frame on when you plan to sell unless you are a day trader that has no interest in owning crypto.

But then again, if you consider those who invested years ago, you can see the benefits of holding indefinitely. They have managed to ride out all those pullbacks. The current rally looks set to continue further as experts predict bitcoin to trade in the region of $100,000 at some point in the near future. Whether that takes eight months, a year or two years remains to be seen. It is the indefinite wait.

Disclosure: No positions.

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Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites. Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.