How to Keep Profits when Investing in Cryptocurrencies
Hi Crypto Network,
For all the long-time followers, thank you for your amazing shares and comments on our recent beginners guide to cryptocurrencies article.
It highlights just how much the industry is still in its infancy.
Today’s focus will be on ‘How to keep profits when Investing in Cryptocurrencies’, but first let’s take a look at how the market is performing today.
The markets are still in a sideways motion as the majority of digital currencies are in minor loss or minor gains. NEM’s XEM led the positive action in the markets on Sunday and has continued into Monday morning. Total market capitalisation has stepped over the $210 Billion mark and is sitting just over $213 Billion.
There is a feeling in the market that something big is going to happen soon, some of the largest financial institutions, Fidelity and Goldman Sachs are increasing their crypto activities.
HOW TO KEEP PROFITS WHEN INVESTING IN CRYPTOCURRENCIES
One of the major factors that attract investors and traders to this type of investment is the volatility, where a crypto can be worth $1 one day and $25 a couple of months later. I have spoken about the topic of Holding and how this is not the most profitable method of investing short, medium and long-term, buying/selling a portfolio actively is always going to render more successful results.
Today, however, I wanted to focus on the idea and concept of a ‘stablecoin‘ in the sector. Having a well-established cryptocurrency within this sector with very little volatility, one which has a stable and trusted background is crucial. When you start investing a lot of money it is crucial you know how to keep profits, Stablecoins allow for this to be possible. Having an understanding on an ongoing basis of the amount of money you have invested in the markets is another factor which cannot be ignored.
As you may already know there are more coins of this nature entering the market with very high profile backing such as Paxoz, Gemini dollar, and Circle.
HOW TO INVEST IN CRYPTOCURRENCY — WHAT IS A STABLECOIN
A Stablecoin offers a solution to markets where there are unknown/high levels of volatility. When Cryptocurrency Investing faces a certain level of uncertainty, crypto investors may wish to use cryptocurrency exchanges to move their assets to a holding that is not affected by the rest of the market.
The issue with the crypto market and the need for Stablecoins and the effective use of them is apparent as the major currency is Bitcoin (BTC) a currency which can move +/- 5–10% on is own each day. This creates somewhat of a problem as traders and investors need a place to be able to store their profits.
You may have found yourself placing a successful major cryptocurrency investment only to find on the way to realising your profits you end up losing a % of it because the market has dropped.
How To Invest In Cryptocurrency becomes a real question, one answer is the process of using Stablecoins. One of the most notable Stablecoins called Tether has existed to solve this problem for investors. As mentioned earlier, there are others in this space but in essence, they are all solving the same issue, providing a stable store of value in a highly volatile marketplace.
MOST COMMON TYPES OF STABLECOINS COLLATERAL-BACKED IOU (FIAT-BACKED)
The first type of Stable coin is one which is probably the most common, a FIAT-backed currency as collateral for issuing cryptocurrencies. The most common one is Tether, which although it has been heavily criticised in the marketplace, has a very strong footing currently at number 8 in market capitalisation just over $2 Billion.
An alternative is TrueUSD which has assets in escrow with identified banks. Which means that the cryptocurrency investor connects to the platform of banking partners for the purchase or sale of TrueUSD. This reduces risk and ensures stability.
COLLATERAL-BACKED ON-CHAIN STABLECOIN
This style of Stablecoin is an option which was pioneered by BitShares, where the stability of the coin uses another cryptocurrency reserve as a collateral.
There are clear and distinct benefits of a model like this as it can be cleared more quickly and more cost-effectively, it’s very transparent through the use of smart contracts which also means no need to rely on any third party to redeem or to utilise the coins.
MakerDAO has been recently touted as one of the most promising crypto-backed stable currency projects with its unique approach to offering a stable coin through the Ethereum network over-collateralisation. It makes sense, however, I believe this runs a risk of being reliant on a very volatile asset like ETH.
STABLECOIN CRYPTOCURRENCY INVESTING
So now we have established what Stable coins are and the types of Stablecoins available to us, how do cryptocurrency investors and traders take advantage of them?
An important strategy when investing in cryptocurrencies is using Stablecoins to hold some of your profits. Currently, the market is in a sideways motion and has been termed as a bearish market, so having some of your portfolio profits stored would be an ideal situation right now.
Having stores of Stablecoins can enable you to buy up a lot of coins at cheap prices during these bearish times, whilst not having to deploy additional FIAT capital, and utilising previous profits from previous highs.
Getting into the habit of storing profits in Stablecoins allows for an investor to actually protect against market volatility in the negative direction, and provides the ability to deploy capital that would otherwise have been lost when holding in a non-stable currency when the market is in a bearish trend.
A Stablecoin is an asset in the cryptocurrency space which isn’t affected by volatility and has a stable value, offering investors and traders an option to store profits rather than the potential loss of those profits by storing them in BTC or ETH.
The current reality is that since Tether has launched in the market it has become the industry store of value, like USD in Forex trading. You can check the charts of Tether going back several years now, it has consistently provided the opportunity to store value, and is one which, although highly controversial, is being used by many crypto traders and investors.
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Hopefully, you have enjoyed today’s article. Thanks for reading!
Have a fantastic day!
Live from the Platinum Crypto Trading Floor.