How to Avoid Crypto Volatility?
For the past month, the crypto market capitalization would soar above $2.1 trillion dollars and drop down to $1.8 trillion dollars, a whopping $200 billion difference. This only goes to show that crypto volatility is going as strong as ever. How do you deal with it effectively? We explain this in our short article.
Why are Cryptocurrencies Volatile?
To understand why the prices of cryptocurrencies are so unstable, we have to understand what makes them up. It may surprise you but it is not pure speculation.
By design, the foundation of Bitcoin price and other Proof-of-Work currencies is laid by miners: the more energy intensive mining is, the higher price the miner has to sell new BTC for.
However, the correlation between mining difficulty and the price of Bitcoin only lays down a general trajectory. In a shorter term, prices of cryptocurrencies are more noticeably influenced by supply and demand.
The general dependency between price and demand is that the latter drives the former up. At the same time, the higher the price, the less demand there is.
Every four years, the miner rewards for Bitcoin get slashed in half in an event known as halving. It significantly decreases the inflation rate of BTC and therefore, puts a pressure on the supply, which also drives the prices up.
Roughly every four years, in a year after the halving event, Bitcoin goes on a parabolic rally because of this pressure. Since its capitalization takes up roughly a half of the entire crypto market, other assets follow its price trajectory.
Once the rally reaches its peak, the demand cools down, and the market attempts to correct itself. Prices gravitate towards the point of equilibrium between the supply and demand, and every sharp price change usually is followed by an opposite reaction.
When we are talking about even shorter time frames than a market cycle, price changes can be in favor of “bulls” or “bears” interchangeably. A bull is a market participant who earns on rising prices, and bears make money when the price goes down.
Will crypto become less volatile? Realistically, only in the long term, though periods of high volatility and low volatility also occur in the meantime.
How to Deal with Crypto Volatility?
Here are a few tips that can help you keep your earnings on an unstable market:
- Hedge against crypto volatility. Sometimes a smart move is to take profit and move it to a more stable asset, such as stablecoins;
- Technical analysis is your friend. It is a methodology that uses patterns to attempt to predict the behaviour of market participants. Although it is never 100% certain because humans can be irrational, it can nail down the price movements pretty reliably at time;
- Manage risks. Always keep a cool head and a plan B in mind when trading: the market can be a lot to handle.
- Hold! Even if holding has been memed to death, it is really a viable way to stay in the black. The general trend is moving up, so you may get a chance to sell for profit later.
- Diversify and never invest more than you are willing to part with.
- Last but not least, if you feel that volatility is a threat, do not even think about leveraging your trades. Sure, leverage can bring in profits but it is the same old crypto volatility multiplied: don’t venture if you can’t handle it.
How to Exchange Crypto without Worrying about Volatility?
What to do if you need to get on crypto instead of another while the market goes crazy? How do you trade volatile crypto?
For these cases, ChangeHero’s Fixed Rate swaps are a real life-saver. In this type of exchange, when you initiate a transaction, its end result will be the same as at the time of confirming the exchange.
Therefore, even if the price changes while you are exchanging the most volatile assets, you can be sure of the result you will receive at the end of the exchange.
Here is a step-by-step instruction on how to use the Fixed Rate exchange:
Step 1: Choose ”Fixed Rate” in the widget on the ChangeHero home page to initiate. We picked a BTC to TRX swap.
Step 2: After you click “Exchange”, you will be redirected to a processing page. First, you are prompted to provide addresses: a recipient address for the currency you are exchanging to and a refund address for the currency you are exchanging from, in case your exchange expires.
Step 3: After you click “Next”, you will be shown the details and a rate that will be fixed for the rest of the exchange. Don’t forget to check the Terms of use and KYC policy before proceeding;
Step 4: Next, you will be prompted to send in a single transaction the sum you will be exchanging. You can copy the ChangeHero address or scan the QR code. Since the rate is frozen, there is a time limit of 15 minutes;
Step 5: Once we receive and exchange the funds you sent, additional information such as transfer hashes will appear, as well as how soon your transaction will be confirmed on the blockchain;
Step 6: Finally, once we send the exchanged funds to you, consider the transaction done! Even if it took a few minutes, note how the rate is the same as in step 3.
And that is that! Easy enough, isn’t it? In any case, should you have any difficulties, don’t hesitate to contact our customer support service in the chat on our website or through the email: support@changehero.io. We are always online!
See for yourself how reliable the Fixed Rate is: make a crypto swap on ChangeHero.
Conclusion
Bitcoin volatility is mostly a product of short term trading, and as years go by, it affects the entire crypto market less. There are always options to hedge, trade smart or even hold on to dear life that can help you cope with unstable prices.
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