Earning on declines during a Bitcoin correction — how is it done?
Most of us are used to the fact that Bitcoin is made profitable by increasing its value over time. The HODL strategy worked very well throughout 2020. However, the Bitcoin correction also showed a different approach — earning on declines can also be very profitable. This article will tell you the story of a trader who got rich in recent declines.
Bitcoin correction and earning on declines
For people who have held Bitcoin for the last year, the flagship cryptocurrency has allowed obtaining returns on investment of several hundred per cent. For many crypto investors, HODL means almost the same as “to be or not to be.” While this strategy pays a satisfactory return in the long term, there are hundreds of opportunities along the way that can multiply our capital through exchange rate fluctuations. Thus, in addition to the sharp rises in Bitcoin’s price, a great opportunity is also to take advantage of the downturn or short-term collapse of the trend.
The recent Bitcoin correction caused the price of the most popular cryptocurrency to drop by 20% in a matter of hours. Suppose you remember our earlier article on long and short positions on the stock exchange. In that case, you know very well that apart from buying Bitcoin in anticipation of its price increase, we can also short it — hope that its price will drop in the future. An investor who can analyze BTC charts and observe financial indicators will quickly pick up signals of instability coming from the market.
Earning on inheritance — an example
Our friend (the trader) deals with derivatives trading (trading with leverage) on the Geco.one exchange in his spare time. During the April correction, he carefully monitored the market. At one point, he pointed out that the chart patterns and the incoming market information had the potential to start substantial declines. As a result, the trader decided to close his long positions in favour of shorts. Soon after, it turned out that his predictions were correct. As a result, the price of BTC and other cryptocurrencies has dropped sharply, and the trader has secured a profitable investment, as shown in the photo below. As a result, profit was additionally increased, thanks to the use of leverage.
Why is it worth making money on price decline?
Earning on declines, short position — regardless of what we call this investment strategy — remember that this method allows you to benefit from the falling price of a given cryptocurrency. In the case of long positions, we count on a long-term increase in the value of our investment. In the case of shorts, we focus instead on the short term.
But why is shorting so interesting in times of a pandemic? Over the past year, we have seen high volatility in most investment markets. It applies to the capital, indices, crypto, commodities and real estate markets. In March 2020, even the cryptocurrency market succumbed to panic everywhere. In conditions of increased uncertainty, earning on declines is a strategy that is gaining importance. Therefore, it is essential to understand the fundamental principles of the market — a well-informed and educated investor can find a chance even in challenging economic conditions.