Bitcoin volatility

Best Methods To Reduce Risk with Bitcoin Price Fluctuation

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This article will be explained what options you have as an investor to reduce risk with the famous Bitcoin price volatility.

In particular, Bitcoin price volatility has been tied to Bitcoin since its introduction back in 2009. The famous online digital cryptocurrency has been around for almost a decade now, but it has been a bumpy ride! Firstly, Bitcoin was introduced to the markets as an alternative to fiat currency and also as a result of the financial crisis back in 2008. Also, Bitcoin has some unique properties when it comes to digital money and this can be one of the main reasons for having these huge price swings.

Bitcoin Price Fluctuation & how to handle price swings

Nowadays, many insiders of this market see Bitcoin more as a form of digital gold and Saifedean Ammous wrote a very interesting book(The Bitcoin Standard) about it.

Blockchain technology with Bitcoin included can be considered as a revolutionary technology that is still in its infancy. Moreover, its a very risky asset being in this early stage of the adoption cycle. Meaning price volatility compared with USD or EURO is just part of the game. Still, this is the cryptocurrency market and although this market is relatively young it already experienced 4! Bitcoin Boom-Bust cycles.

Bitcoin volatility and Boom-Bust cycles

So Bitcoin has crashed four times and with the most recent fall that began in December 2017 is also a crash.

  • First boom ATH was 2011-06-08 and bust -93%
  • Second boom ATH was 2013-04-09 and bust -71%
  • Third boom ATH was 2013-12-04 and bust -85%
  • Forth boom ATH was 2017-12-16 and bust -84%

Below a historical image of what can be considered as a classic boom-bust cycle.

Bitcoin volatility bubble phase

What is Bitcoin and what makes it unique

In the first place, Bitcoin can be considered as the first Blockchain-based cryptocurrency ever created. Furthermore, one of the most famous properties of Bitcoin is its limited supply which is capped to a maximum of 21 million ever to be created. As an illustration, 21 million coins in total are less than the total amount of millionaires currently living on earth!

Bitcoin is a cryptocurrency and can be defined as online digital money. This kind of money uses cryptography as a form of security. In fact, the use of cryptography is very important because this technology offers security against falsification and double-spending.

Decentralization of Bitcoin

The most important property of a cryptocurrency lies in its decentralized form. In addition, this decentralized property uses a Blockchain network of computers and has no owner. This Blockchain technology can be described as a distributed ledger enforced by a disparate network of computers. In particular, the main difference compared to fiat money used by our banks today is in its deflationary form.

Bitcoin a risky asset for investors
Bitcoin is the largest decentralized cryptocurrency in the world

Fiat currency

Fiat currency has no limit in the circulation of money and central banks all over the world use this inflation mechanism to print more over time. Cryptocurrency, however, has a limited supply and you can say its deflationary. Another important difference is the central ownership or the lack of central governance. This is the most important feature of a cryptocurrency and is theoretically immune to government intervention or manipulation.

Correspondingly, Bitcoin gained much in popularity and this resulted in other cryptocurrencies being created. Besides, most of these newly created coins are just clones of the original(Bitcoin) and only differ in supply. These new clones are called ‘forks’ and are newly created blockchains that have the same codebase but split off on a new chain(network). Similar to Bitcoin these coins have also massive price fluctuations and are risky assets also.

Best methods to handle Bitcoin Price Fluctuation

Firstly, when you are thinking about trading Bitcoin or investing in cryptocurrency it’s very wise to do some thorough research about these markets first. Additionally, most investors in these markets are called ‘HODLERS’. HODLING is a slang and means that they bought cryptocurrency in the early days and are not willing to sell.

1. HODLING Bitcoin and reducing risk

In other words, they can be considered as believers in this new technology. Crypto is famous because of the limited supply and this is the reason they are not willing to give up their positions. So far this holding strategy has paid out very well for most of them(10X-100X virtual gains).

If you want to conquer the bitcoin volatility in this market, my first advice would be to join the HODLERS in these markets.

Cryptocurrency wallets

Secondly, find out about cryptocurrency wallets, because here is where you want to store your newly acquired crypto. For holding onto your crypto assets for a very long time I advise you to use hardware wallets. The reason for this is that storing your crypto that way protects you from bad actors. Hackers or online criminals can’t access your crypto and you also have control of your own private keys.

Last but not least, buying the famous cryptocurrency. The quickest way to do this is to go to Coinmama. Additionally, this platform allows you to buy Bitcoin with a credit card or bank account.

2. Copy trading

Copy trading is another alternative for reducing risk with Bitcoin price volatility. In fact, this type of trading is a new online phenomenon that was being introduced by stockbrokers in the traditional financial world. At these platforms, inexperienced stock traders can copy successful traders and have the opportunity to learn.

Also, the successful stock traders are rewarded with commissions for sharing their trades. This way both parties have the ability to benefit from it. In general, the massive growth of cryptocurrencies hasn’t been unnoticed by these online broker platforms. One of the platforms which also offer cryptocurrencies is E-Toro.

E-Toro

E-Toro is a social trading and investment network that enables users to watch the financial trading activities of other users, copy them and make their own trades. The Company’s products, OpenBook and WebTrader, allow traders to learn from each other, share live trading information and capitalize on their collective power.

Setting up a free demo account here is the best way to start and getting to learn the platform. Beginning with trading requires a minimum deposit of $200.

3. Mining cryptocurrency

Another popular way of handling Bitcoin price fluctuation and cutting out risk comes from cryptocurrency mining. If you are already familiar with cryptocurrency then you must know that Bitcoins are mined instead of minted. This by using a lot of electricity to mine the several blocks on the network.

Bitcoin cloud mining

Nowadays, it’s also very easy to join online cloud-mining services. These online services allow you to hire a hashing rate for a certain subscription on a monthly basis. How higher the hashing rate, the higher the possible reward will be. One of my favorite online services is genesis-mining. You can get a discount of 3% by using this action code(PJOqFD) when setting up a new miner.

4. Running a masternode

A masternode can be described as a computer or node which participates in a Blockchain network of computers. This node has a full and latest copy of the actual Blockchain stored on its hard disk. One of the most famous nodes out there are the Bitcoin full nodes, but also other Blockchain networks use this principle. So can you compare a Bitcoin full node with other masternodes out there?

Bitcoin volatility and masternodes

The answer is no. Masternodes have properties that differ from normal nodes on a Blockchain network. The most common difference lies in the fact that they perform different tasks compared with common nodes. Some of the special tasks they deliver are:

  • Increasing privacy of transactions
  • Doing instant transactions
  • Participating in governance and voting
  • Enable budgeting and treasury systems in cryptocurrency

In particular, masternodes are participating in a network and are communicating with each other as any other Blockchain network does. This to keep the most crucial element of a Blockchain network intact, which is decentralization.

reduce risk with masternodes

Running a masternode: Is it risky?

What does it take to run a single masternode? Every single person who is interested in running a node is free to do this. There are no constraints or barriers just like setting up a full Bitcoin node. However, running a masternode comes with an obligation. One needs to commit or collateralize certain units of a particular cryptocurrency in a wallet. Moreover, these locking of coins lasts 24 hours a day and 7 days a week.

The most important reason for this is by collateralizing certain units the masternode owner has something at stake in this holding game. Holding a large amount of crypto ensures that the owner can’t cheat and secures the total Blockchain network. This holding comes with rewards whereby after a certain block is mined masternode holders are rewarded in cryptocurrency.

Why masternodes?

Masternodes have the reputation to be a passive income generator tool for the few ‘rich’ cryptocurrency holders out there. As we all know the cryptocurrency markets are currently bottoming out and prices are very low compared to a year ago. This comes with an opportunity for investors who are not interested in trading crypto.

Nowadays, investing large amounts of coins(HODLING) and setting up a masternode comes with lower risk. If you are a believer in this cryptocurrency market and want to handle bitcoin price fluctuation, owning some masternodes is a way to do this.

Conclusion

The cryptocurrency markets are still heating up and haven’t reached the greater public yet. As a result, Bitcoin price fluctuation is a factor that traders and investors in the market have to deal with. In this article, I have described four methods that can reduce the risk of massive losses and prevent a proper headache.

Disclosure: This post could contain affiliate links. This means I may make a small commission if you make a purchase. This doesn’t cost you any more but it does help me to continue publishing cool and actual content about Bitcoin & Crypto – Thank you for your support!

Jelmer Steenhuis
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Jelmer Steenhuis

Online entrepreneur at uDigitize
Crypto believer and 'Hodler' of Bitcoin since the early days. Spreading the word about this exciting new technology..
Jelmer Steenhuis
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