Even while several cryptocurrencies have seen enormous gains over the past few years, this rapid expansion has not been without frequent slumps. Long-term holders have two options at these times: either accept that these losses are temporary or won't matter in the long run, or take action to safeguard their portfolios and increase overall profitability. Thankfully, there are now a few quick solutions to safeguard your portfolio during a downturn.
Hedge Your Positions in Spots
Opening a second position that will profit if the market moves negatively against the first investment is a method known as hedging that is intended to protect an investment against risk. In general, the two positions ought to be constructed to balance each other out regardless of how the market develops, thereby essentially locking in the cost of the first investment.
Traders that are confident in a digital asset's long-term potential but fear that short-term volatility may result in unneeded losses typically employ this method. The market can be shorted utilizing one of the several cryptocurrency futures exchanges, which allow you to go long as well as, probably more crucially, short on the market, in order to avoid this.
Currently, most major cryptocurrencies, such as Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), XRP, and others, have futures contracts available, making it possible to securely protect most spot positions with a short hedge. Furthermore, risk hedging can be quite cheap due to the 150x leverage that cryptocurrency futures exchanges presently offer.
To avoid automatic liquidation, just make sure to finish your short position as market volatility subsides and to keep your margin within platform specifications.
Increase Your Unused Balance's Interest Rate
The best strategy to achieve neutral risk exposure is by opening a short hedge, but this is by no means the only way to safeguard your portfolio from losses.
Simply accumulating interest on the remaining balance in your portfolio is another approach to accomplish this. Currently, a sizable number of reputable sites give up to 10% interest on cryptocurrency deposits, enabling you to increase your underlying value with little to no risk.
Exit Volatility Temporarily
Simply trading more volatile crypto assets, such Bitcoin, Ethereum, and XRP, for stablecoins like Tether and True USD (TUSD) is a smart approach to achieve this for individuals who want to entirely escape volatility and preserve their portfolio in the safest manner possible.
Similar to this, it is also feasible to profit from the market recovery by temporarily departing volatility during periods of loss by re-entering the market at a lower price than you did when you entered. You'll therefore be in a better position than when you started because your portfolio will be bigger overall and at no additional expense until the market rebounds.
For instance, it would be in your best interest to exchange to a stablecoin at $9,000 and wait until the market crashes and starts to show signs of recovery if you own one bitcoin at its current market value of $9,000 but believe that, for whatever reason, the market will crash by 50% before recovering. With the $9,000 worth of stablecoins you got when you left volatility, assuming you buy back in at $4,500, you could then buy two bitcoins.
You will eventually be in a situation where you have two bitcoins, each worth $9,000, for a total portfolio value of $18,000, should the market rebound as projected. What a way to turn a terrible circumstance around!
