3 ways to make money during the crypto winter
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From a young age, we are taught that the capital markets have the power to make us rich. Whether it’s from your first economics professor or your accountant uncle, we’ve all heard countless times that compounding is king and time in the market is the most valuable asset you can buy. To be clear, that math do add together. History shows that the market, measured by the S&P 500, has an annual return of approx. 10%. That said, never really feels as if this is what people do.
Markets are as volatile and volatile as they have ever been against the backdrop of greater access to consumer finance products and the rise of social media platforms as mediums for information sharing. GameStop, AMC, Dogecoin and Shiba Inu are good examples of how market sentiment is not something to underestimate, and in most cases it shows that you might be better off doing what they say and not what they do. Time in the market may be “king”, but timing the market (within reason) is just as important.
Here are three things you should keep in mind to capitalize on your financial investments.
1. Do. Your. Investigations.
One of the biggest obstacles to cryptocurrency markets is the notion that they are purposefully convoluted and confusing. To this day, the average person still cannot explain how a blockchain works or how an economy running on cryptocurrency will lead to ultimate financial inclusion. Instead, stories about how blockchain and crypto enable money laundering and financial exploitation saturate the internet. Also, the statements from regulators around the world discourage the average person from diving into the technology, indirectly forcing them out of the market because they don’t understand it, and things we don’t understand are scary.
While it is important to understand what you are investing in, there are many cases where the average person takes a passive approach and follows the crowd. When was the last time you read the terms and service agreement before clicking “Accept”? That approach is how most people go about investing themselves. They are quick to dump their hard earned money into the most popular and talked about stocks.
However, very few people have the skills to value a company. Terms such as tender offers, share splits and market value live outside the minds of the vast majority of market participants. This is not to say that you should do the same with speculative cryptocurrency investments – in fact, I suggest the opposite. Take the time to learn about blockchain and cryptocurrency’s key value propositions and take a little more to better see the arbitrary inconsistencies in the financial markets. Doing so may just unlock your next great boon.
Related: How to start investing
2. Diversify, diversify, diversify
The world of financial markets is incredibly large. Stocks, bonds, foreign exchange, ETFs and cryptocurrency are just a few ways for investors to take views and attempt to capture value. Part of solving the puzzle that is the financial markets is understanding how to use the tools you have in your toolbox and making sure your toolbox has the best tools in it. For example, to invest in cryptocurrency, you don’t necessarily need to buy individual tokens. You can get crypto exposure through the stock market by investing in Coinbase or one of the other listed companies. Or you can invest in any number of ETFs that allow you to diversify your holdings automatically.
It is important to understand that not all coins are created equal. Of course, you have your main cryptocurrencies: Bitcoin and Ethereum, but there are thousands of alternative coins (altcoins) that you can invest in. It is also important to understand the difference between infrastructure coins and decentralized application (dApp) coins, given that the risk profiles of these investments are quite different. Infrastructure coins are a bet on the technology’s ability to attract builders of hopefully successful applications, while dApp coins are used for the success of the individual application’s success. Understanding these dynamics helps smart investors balance risk more effectively.
Related: Cryptocurrency millionaires diversify into real estate. You should be too.
3. Buy low. Selling high.
It sounds simple, but this cardinal rule of financial markets is often broken.
The market gets out of control every now and then and quantitative tightening happens. When this happens, frothy markets correct themselves and prices begin to reflect it. Unfortunately, there are always investors who cannot tolerate the long-term volatility and start selling assets prematurely. Groupthink exacerbates this problem, and often these traders bring their friends with them. We are generally taught not to prey on the misfortune of others, but this behavior often creates the best opportunities for those who are patient and willing to weather the instability. The market can sometimes be like a rubber band where things swing from overvalued to undervalued in an instant. By taking advantage of these swings, you can get even more value than before.
Related: 5 Ways to Maintain and Grow Your Wealth During the Cryptocurrency Dive
To summarize
The capital markets act as the ultimate mechanism for the exchange of value between borrowers and savers. As an investor, your job is to ensure that you have capital to invest when opportunities arise and that you also part with money when advantageous exits arise. Ultimately, the bottom line here is that very few investors perform the necessary due diligence required to make the best educated investment decisions. While repeating these rules may not correct that fact, it may inspire a couple of investors to take advantage of the opportunities their counterparts present to them.
