However, by keeping a cool head during times of decline, it can be possible to extract profits that other traders miss — while skillful use of short positions can be used to protect against losses in other trades. With that in mind, these are the three things you should bear in mind the next time the market turns sour.
There Are Now More Opportunities to Short Bitcoin
Although the long-term ‘hodl’ mentality is strong with many cryptocurrency investors and traders, it is important to recognize that there are plenty of opportunities to be had — even during a bear market. Many of these opportunities involve cryptocurrencies that are on a clear decline and, as such, are suitable targets for short traders.
One of the most popular ways to short cryptocurrencies is through cryptocurrency futures trading platforms. In the context of cryptocurrencies, futures are a type of derivative financial instrument that tracks the price of an underlying cryptocurrency, such as Bitcoin (BTC) or Ethereum (ETH), and allow traders to easily speculate on the direction on the market.
Part of the reason futures are arguably the most popular way to short cryptocurrencies is thanks to the ability to open trades on leverage — which is essentially the practice of opening large trades with little capital. Since StormGain offers up to 150x leverage, while some other cryptocurrency futures exchanges offer up to 100x leverage, it is possible to turn even small bearish movements into incredible profits.
By opening a short trade at 150x leverage on a cryptocurrency that loses five percent over the contract period, the total profit will be 750 percent profit — equivalent to turning $1,000 into $7,500 in a single trade. As such, it is clear that even slight dips can be turned into staggering profits using this strategy. However, slight movements in the opposite direction will quickly eradicate your balance, so extreme caution should always be used when trading with any amount of leverage.
There Are Always Outliers
Bitcoin bear markets can be a daunting time for any trader since it can be challenging to reliably identify profitable trading opportunities during times of overall market decline. However, even during bear markets, it is uncommon for there not to be at least a handful of outliers that buck the prevailing trend and manage to accrue significant gains.
One of the simplest ways to easily identify potential outliers is by using the BeInCrypto pricing watcher tool, which automatically tracks the performance of more than 6,600 crypto assets. By clicking the ’24h Change’ toggle, the list will be automatically ordered by the best performers in the last 24 hours — allowing you to easily spot outliers.
Alternatively, for a quick overview of the market, the Coin360 prices heatmap is worth taking a look at it. Any cryptocurrencies showing as light or dark green against a predominantly red background might warrant further investigation, as these could continue to defy the market.
Since buying pressure is often focused on one or a select few cryptocurrencies, this often results in exaggerated gains, even during a bear market — which can yield hefty profits if bought before gaining significant momentum.
Over time, you might find that there are a few usual candidates — including Dogecoin (DOGE), Chainlink (LINK) and Cosmos (ATOM) — which can often be seen racking up significant gains while the rest of the market struggles.
Lock in Your Portfolio
Unfortunately, it isn’t always possible to secure profitable trades during a declining market and, sometimes, it just isn’t worth the headache to try. For times like this, it might be wise to simply lock in the current value of your portfolio by opening a short hedge and wait out the bear market.
Arguably the simplest way to hedge against volatility is through the use of cryptocurrency futures — simple derivatives contracts that allow you to go both long (bullish) and short (bearish) on the market.
If, for example, you’ve got a sizeable position in Bitcoin and you’re looking to protect it during a bear market without needing to sell out, you could simply open a short position that is large enough to cover your spot holdings on one of the many cryptocurrency futures exchanges.
Thankfully, since these platforms allow you to open positions as much as 150x larger than your account balance through the use of leverage, it is possible to protect even large portfolios for less than one percent of its total value — allowing you to essentially opt-out of volatility without needing to risk a huge amount. Once the market returns to a bullish course, you can simply exit your hedge to lock in your profits and resume trading as usual.
It’s as simple as that.