Crypto Bubbles Investing

If you have been wondering about crypto bubbles and investing in cryptocurrency you have come to the right place. Cryptocurrency has taken the financial world by storm, but its high volatility and unpredictability often scares off aspiring investors.

We have no affiliation with the Crypto Bubbles app. Instead, you’ll learn about building wealth despite the pervasive crypto bubbles and fluctuating market, and how you can protect and keep your assets growing even with crypto market volatility.

For many, the crypto market seems like a chaotic gamble, where you buy an asset, hope for an astronomical rise, and pray you don’t lose it all during a crash.

This narrative has dominated public perception, but it overlooks the structured, methodical approaches that can make crypto investing a much more reliable and rewarding endeavor.

This comprehensive guide walks you through how to not only grow wealth in crypto but also protect your gains with tested strategies.

Whether you’re new to the space or a seasoned investor, this is your blueprint for navigating crypto bubbles market shifts with confidence.

Crypto Bubbles: The Case FOR Cryptocurrency Investing

Cryptocurrencies are no longer just speculative assets. They represent a burgeoning asset class that combines innovative technology with potentially high returns.

Here’s why you should consider investing in crypto:

• Potential for High Returns: Cryptos like Bitcoin and Ethereum have historically far outperformed traditional investments.
  
  
• Accessibility: Unlike stocks or real estate, you can start investing in crypto with as little as $10.
  
  
• Financial Independence: Cryptocurrencies operate outside traditional banking systems, offering a hedge against inflation and economic instability.
  
  
• Passive Income Opportunities: Through staking, lending, and yield farming, crypto can generate steady returns without the need to sell your assets.

That said, high returns often come with high risk, which is why a methodical approach is crucial.

So, the first thing you should learn about crypto bubbles is how to protect yourself against future bursts that will inevitably occur, and continue to make money.

How to Protect Your Crypto Gains

The crypto market’s volatility can quickly eat into your hard-earned gains during market downturns. Here are strategies to secure profits while still participating in future growth.

1. Use Stop-Loss and Trailing Stop Orders

Like the way it works with stock trading, with crypto you can similarly place stop-loss orders automatically to sell your crypto when it falls to a specified price that you set, thereby minimizing potential losses.

Trailing stop orders, on the other hand, move with the price. When the price goes up, you lock in profits allowing your assets to rise in value and stay up.

Example:
You buy Ethereum at $1,500. When its price reaches $2,000, you set a trailing stop at $1,800. If the price drops, your Ethereum gets sold at $1,800, locking in your gains.

Stop-loss Orders in Detail

The core concept of stop-loss orders can protect your rising crypto gains from big losses during market dips, and it generally works the same across different crypto exchanges:

• You set a price at which the order is triggered (trigger price).
• When the market price reaches your trigger price, an order to sell your cryptocurrency is automatically placed (order execution).

The specific steps and available order types can vary slightly between exchanges, but to illustrate the process, here are the steps for Coinbase, a leading crypto platform:

1. Access the Coinbase Trading Platform
   Log in to your Coinbase account and navigate to the trading platform.
   
   
2. Choose the Crypto Asset
   Select the specific cryptocurrency for which you want to set a stop-loss order.
   
   
3. Select "Stop Limit"
   Click on the "Stop Limit" button within the order form. This order type is crucial for setting stop-loss orders effectively.
   
   
4. Define Stop Price and Limit Price
   
   Stop Price: This is the price at which your stop-loss order will be triggered.
   
   If the market price of your cryptocurrency falls to the stop price, your stop-loss order will become a limit order.
   
   Limit Price: This is the price at which you're willing to sell your cryptocurrency when the stop price is triggered.
   
   The limit price should be slightly lower than the stop price to ensure your order is executed.
   
   
5. Specify Order Amount
   
   Enter the amount of cryptocurrency you wish to sell if the stop-loss is triggered.
   
   
6. Place the Order
   
   Review your order details carefully.
   Click "Place Order" to submit your stop-loss order.
   

(To find the exact instructions for your specific exchange, you have to visit the exchange's help center, support page, user guides or tutorials.)

Here's a general sequence for setting stop-loss orders, including trailing stops, that should be adaptable to most cryptocurrency exchanges:

1. Access the Trading Platform
   Log in to your exchange account and navigate to the trading interface.
   
   
2. Select the Cryptocurrency
   Choose the specific cryptocurrency you want to trade.
   
   
3. Choose the Order Type
   
   Standard Stop-Loss: Select "Stop-Loss" or a similar option.
   Set the Stop Price: This is the price at which your order will trigger.
   Set the Order Amount: This is to specify how much cryptocurrency you want to sell.
   
   Trailing Stop-Loss: Select "Trailing Stop" or a similar option.
   Set the Trailing Percentage/Amount:Percentage: Define the percentage below the current market price at which the stop-loss will trigger (example, 5%, 10%).
   Amount: Define the fixed dollar amount below the current market price at which the stop-loss will trigger.
   Order Amount: Specify how much cryptocurrency you want to sell.
   
   
4. Place the Order
   Review all order details carefully.
   Click "Place Order" to submit your order.

Additional Core Information

• Due to exchange variations, the order types and their names may differ slightly between exchanges.
  
  
• Some exchanges may offer additional options like "Stop-Limit" (combining stop and limit orders) or "Trailing Stop-Limit."
  
  
• Order Interfaces: The user interface for placing orders can vary significantly across platforms, but the principle will be the same.

Order Types

• Stop-Limit:
  
  This is the most common and the most precise. When the trigger price is hit, a limit order is placed to sell at a specific price (your limit price).
  
  This gives you more control over the selling price. However, remember that it may not be executed right on the dot if the market moves quickly.
  
  
• Stop-Market:
  
  When triggered, this immediately sells at the best available market price.
  
  This ensures your order is filled quickly but may result in not the most favorable selling price.
  
  
• Trailing Stop-Loss:
  
  The stop price automatically adjusts as the market price moves, helping to capture more profits in an uptrend.
  
  This could be very beneficial depending on your investment strategy.
  
  Example:
  You have $10,000 in Bitcoin. You activate a 10% trailing stop-loss.
  If the market soars, the trailing-stop locks in your gains at $11,000 (plus 10%), and every 10% increase.
  If the market dips, you sell at $9000 (i.e., minus 10%).

Unlike in margin trading, the traditional crypto investing -- where you typically buy and hold assets -- if the market dips, the value of your holdings decreases, but your loss is limited to the amount you invested.

This is potentially a boon for long-term crypto investors because crypto can often outpace other markets when it’s rising fast; so, locking in your gains can be a winning strategy.

Important Notes

Order Interfaces: The user interface for placing orders can vary significantly between platforms.

Exchange Features: Some exchanges may offer more advanced stop-loss features, such as trailing stops or conditional orders.

Fees: Be mindful of any fees associated with placing and executing stop-loss orders.

Caution:

Slippage: Stop-loss orders do not guarantee a specific selling price. If the market price drops rapidly below your limit price, your order may not be filled at the desired price.

Market Volatility: Turbulence can impact stop-loss orders. Significant price swings can trigger your stop-loss prematurely, even while the overall trend is still favorable.

Rule of Thumb for Trailing Stops in Volatile Markets

Trailing stops are a variation of stop-loss orders that can enhance traditional stop-loss orders by automatically adjusting the sell trigger as the asset's price moves in your favor. However, there is no perfect stop loss mechanism.

In highly volatile markets, consider beginning with a wider trailing stop percentage (e.g., 10-15%). This provides more cushion against sudden price swings that could prematurely trigger a tighter stop (and boot you out of the trade).

Continuously monitor market conditions. If volatility subsides, consider tightening the trailing stop percentage to capture more potential profits. If volatility increases, widen the stop to prevent being unnecessarily liquidated. 

Hybrid Approach

Combine a trailing stop with a wider initial stop-loss. This provides a safety net while still allowing for potential uptrend in volatile markets.

Example:
Initial Stop-Loss: Set a standard stop-loss order 10% below your entry price.
Trailing Stop: Implement a trailing stop-loss with a 15% trailing percentage.

Important Note:

This is a general rule of thumb and may not be suitable for all situations or risk tolerances. This example is for demonstrative purposes.

Risk Management

Stop-loss orders do not guarantee a specific selling price. Market volatility can significantly impact stop-loss orders.

Consider your risk tolerance and trading strategy when setting stop-loss levels.

2. Periodically Take Profits

Selling a portion of your holdings during bullish periods allows you to lock in gains without fully exiting the market.

Example:
Your $5,000 Bitcoin investment grows to $10,000. Selling $3,000 secures your profits while leaving $7,000 to continue growing.

This reduces risk while also ensure that you have liquidity for other investments you may be considering.

3. Convert to Stablecoins

Stablecoins like USDT, USDC, or DAI are pegged to fiat currencies such as the U.S. dollar or a commodity like gold.

Their primary purpose is to provide a secure and predictable store of value within the cryptocurrency ecosystem. They do not appreciate over time like Bitcoin or Ethereum but they anchor your investments against the volatility.

Essentially, they provide a safe harbor for your gains against the turbulence and dips during market downturns.

In addition, because they are still part of crypto and operate on blockchain technology, they protect your locked-in value until you’re ready to re-enter the market, seamlessly pairing with other cryptocurrencies.

Here are the steps to convert crypto to stablecoins:

• Choose a Crypto Exchange: Use platforms like Binance, Coinbase, or Kraken.
  
  
• Select the Pairing: Find a trading pair for your crypto, e.g., BTC/USDT or ETH/USDC.
  
  
• Execute the Trade: Enter the amount you want to convert and confirm the trade.
  
  
• Store Your Stablecoins: Keep them on the exchange for liquidity or transfer them to a wallet for security.

The benefits of stablecoins are not only to protect your portfolio against volatility, but to keep funds liquid for reinvestment during market corrections.

They also help you avoid the tax implications of converting directly to fiat which we’ll discuss in a bit (do check your jurisdiction’s tax laws for this).

4. Hedge with Derivatives

For advanced investors, options and futures contracts can be used to protect against potential losses.

In short, by opening a short position, you can profit from price drops even as you hold onto your assets.

Caution: Derivatives are complex and carry additional risks. Use them only if you fully understand how they work.

Crypto Bubbles: How to Grow Your Wealth and Avoid Loss

A Beginner-Friendly Blueprint for Crypto Investing

Now that you see the viability of crypto investing, let’s look at ways you can do so as safely and effectively as possible.

1. Buy and Hold (HODLing): A Long-Term Strategy

The "buy and hold" strategy, commonly known as HODLing, involves purchasing cryptocurrencies and holding onto them for an extended period, regardless of short-term market fluctuations.

This approach works best with well-established cryptocurrencies like Bitcoin and Ethereum that have demonstrated consistent long-term growth.

Example:
In 2015, Bitcoin traded at around $300. By November 2021, it reached an all-time high of $68,000.

An investor who bought $1,000 worth of Bitcoin in 2015 would have seen an exponential growth beyond 6-figures (to approximately $140,000), provided they held on through market dips.

Why this works: In a nutshell, it avoids emotional decision-making during volatile periods and leverages the long-term upward trend of the crypto market.

2. Dollar-Cost Averaging (DCA): Removing Emotion from Investing

Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of market conditions.

It’s an excellent strategy for new investors or anyone worried about timing the market.

Example:
Let’s say you have $1,000 to invest. Instead of buying Bitcoin all at once, you could invest $100 weekly over 10 weeks.

This way, you buy at different price points, averaging out the cost while reducing the impact of volatility.

The benefits of Dollar-Cost Averaging are obvious: it reduces the risk of investing a large sum and the burn if the market plunges at the wrong time.

It also encourages disciplined investing in small periodic doses you can hardly feel and protects you from overreacting to market highs and lows.

You basically put into action the proverbial “set it and forget it” mantra. The upward market trend will reward you in the long run.

3. Diversify Your Portfolio

Like any volatile investment, relying solely on one cryptocurrency can be risky. Diversification allows you to spread your investment across different assets to mitigate risk as you grow.

Here’s a sample portfolio allocation:

• 50% Bitcoin and Ethereum: Reliable, established assets
• 30% Altcoins: Cryptos like Solana, Polygon, or Chainlink that have high growth potential but carry more risk
• 20% Stablecoins: Assets like USDT or USDC to provide stability and liquidity

4. Staking and Yield Farming: Generating Passive Income

If you’re holding onto your cryptocurrencies, you can put them to work for you by staking or yield farming.

These methods allow you to earn rewards by participating in blockchain networks or DeFi (decentralized finance) platforms.

Here’s a staking example:
Let’s say you hold Solana, you can stake it on a blockchain validator node and earn a 5 to 6% annual return, depending on the network's rate.

And here’s a yield farming example:
By providing liquidity to a DeFi protocol like Uniswap, you set yourself up to earning a percentage of the platform’s transaction fees.

Obviously, the higher the amount of crypto you’re dealing with, the more significant your passive income.

The advantages of staking or yield farming are that you get to generate steady returns without selling your assets.

Overall, they also contribute to the security and functionality of blockchain ecosystems. So, this can be a win-win.

Withdrawing Crypto Profits and Tax Awareness

As your crypto investments grow and you start withdrawing profits, it's crucial to consider the tax implications and plan strategically.

This topic varies by jurisdiction and country, but here are the essentials to keep in mind.

1. How and When to Withdraw Profits

Taking Profits Gradually: Rather than withdrawing everything at once, consider a gradual approach.

• Percentage-Based Withdrawals: Withdraw a set percentage of your profits (example, 20–30%) during bullish periods to lock in gains without fully exiting your position.
  
  
• Milestone-Based Withdrawals: Take profits when specific goals are reached (example, doubling your initial investment).

Converting to Fiat or Stablecoins:

• For Fiat Conversion: Use a trusted crypto exchange to sell your crypto and withdraw the proceeds to your bank account, making sure that your exchange complies with local regulations.
  
  
• For Stablecoin Conversion: If you want to hold your profits in the crypto ecosystem, convert your assets to stablecoins like USDT or USDC for a more flexible and less taxable option (depending on jurisdictions).

2. Tax Implications and Awareness

It’s important to understand capital gains tax when your crypto assets achieve profits you’d like to withdraw. In most countries, crypto gains are subject to capital gains tax as follows:

• Short-Term Gains: Profits from crypto held for less than a year are often taxed at higher rates (like ordinary income).
  
  
• Long-Term Gains: Crypto held for over a year may qualify for reduced tax rates.

So, you must keep accurate records of all crypto transactions. Your exchange as well as tools like CoinTracker, Koinly, or CryptoTrader.Tax can automate tracking and simplify reporting.

3. Potential Tax Strategies

• Use Tax-Advantaged Accounts (If Available)
  
  In some jurisdictions, you can invest in cryptocurrencies through tax-advantaged accounts like IRAs in the U.S., to defer or eliminate taxes on gains.
  
  
• Offset Gains with Losses (Tax-Loss Harvesting)
  
  If you’ve made substantial profits, you can also reduce your taxable income by selling underperforming assets at a loss to offset gains.
  
  Example:
  You have a $10,000 profit from Bitcoin.
  You sell an altcoin at a $2,000 loss.
  Your taxable gain is reduced to $8,000.

Keep in mind that tax laws for cryptocurrencies are complex and constantly evolving. If you’ve made sizable gains, it’s advisable to consult a tax professional with crypto experience to ensure compliance and optimize your strategy.

In Closing: Crypto Bubbles Investing

Even during times of crypto bubbles, investing in crypto should no longer be a nerve-wracking speculative experience in haphazardly gambling with your savings.

By combining growth strategies like dollar-cost averaging and staking, with protective measures like stop-loss-orders and stablecoin conversion, you can transform crypto from a high-risk gamble into a methodical, bankable asset class.

The key is balance: grow your wealth steadily while safeguarding your gains against inevitable market volatility.

With the right approach, crypto can be a powerful tool for long-term financial growth as you build wealth while protecting your assets too.

Disclaimer: This Crypto Bubbles Investing article is for informational purposes only. Consult with your professional financial advisor before making investment decisions.

ShareFacebookXPinterestTumblrRedditWhatsApp