Six ways to make money when Bitcoin is downtrending
There are more ways to make money on Bitcoin than taking a long position and simply holding on. Whether you want to take advantage of short-term price changes, spend your Bitcoin when it’s no longer earning money, or even bet against Bitcoin, there are plenty of opportunities for investors to take advantage of cryptocurrency price movements. Here are some ways to make money in Bitcoin when the price is going down.
1. Buy the dip
One of the best ways to make money when Bitcoin’s price is down is to buy more of it. While it can feel emotionally and psychologically painful to see your account balances tumble when the price of cryptocurrency takes a dive, it’s actually a great buying opportunity for new investments. After all, buying Bitcoin after a price correction is better than buying it at its all-time highs!
I recommend allocating a fixed percentage of your total investment portfolio to cryptocurrency, somewhere between 1% to 5% is a safe bet. When the price of Bitcoin drops, you’ll likely fall below your target investment allocation. You can buy more until you are back at your target again. When the price of Bitcoin recovers, you can sell off some of your profits to keep your portfolio in balance.
I’ve been investing 1% to 3% of my portfolio in Bitcoin since 2017 and sticking to this target allocation has let me take advantage of dips and cashout on profits at Bitcoin’s highs. It’s helped me manage big swings in Bitcoin’s price by always keeping my exposure to cryptocurrency in line with my goals.
2. Sell Bitcoin using limit orders
Most people think they are at the mercy of the market price of Bitcoin if they want to sell their cryptocurrency, but you can choose your own price that you feel comfortable letting your coins go for.
Limit orders allow you to sell a financial security only if it reaches a certain price during a specified time period. Many experienced investors use limit orders to trade in the stock market, but now limit orders are available on many cryptocurrency exchange platforms too! Because cryptocurrency trades around the world and around the clock, the best prices to execute a sale can happen at a time you’re not available to make a trade, like in the middle of the night. Setting a limit order ensures your Bitcoin will be sold even if you’re not logged in to press “sell.”
To set a sell limit order for Bitcoin, you choose a price higher than the current market price and a time period. Because cryptocurrency markets are open 24/7, you will choose a specific date for your limit order to expire. Typically people set their limit orders to expire in 24hrs, 48hrs, 7 days or 30 days, but your cryptocurrency platform may offer additional options. Your Bitcoin will only be sold if the price reaches the limit order price you set before the order expires.
When using limit orders, your trade will be executed automatically so make sure you’re comfortable with the price you choose. If the price of Bitcoin continues to rise higher than the price you selected, you will miss out on those gains because your coins will have already been sold.
3. Swing trade Bitcoin
Cryptocurrency is exceptionally volatile, and you should expect double-digit price jumps. Instead of being scared of volatility, you can use it to your advantage with swing trades. Swing trading is the practice of making short-term bets on price movements of a financial security. Instead of buying and holding for the long term, you may only hold a financial security for a few months or a few days, or even a few hours before selling.
Because Bitcoin’s price is so volatile, it can be great for swing trading. Double-digit price jumps in a few hours or over the course of a day are normal, which is a huge opportunity to profit from swing trades. However, you need to be paying attention to the markets and have a good amount of Bitcoin on hand to make it work.
Make sure to transfer the Bitcoin you’ll be trading to your cryptocurrency exchange platform so you’re ready to take advantage of large price movements. You can set limit orders to execute trades automatically when Bitcoin hits your price targets, or you can simply set alerts on your phone to notify you when Bitcoin hits a certain price or moves by a certain amount. Many cryptocurrency exchange platforms already email their user base when whenever Bitcoin’s percentage price change is in the double digits.
Before you start swing trading, make a trading plan that includes your entry and exit price targets for Bitcoin. You need to stick to this trading plan to avoid making emotional decisions in response to Bitcoin’s price movements. Swing trading only works if you’re making rational, math-based decisions. It’s likely your intuition will be telling you to do the opposite of what your spreadsheet does, so you need to be exceptionally disciplined to execute your planned trades no matter what Bitcoin’s price is doing.
4. Buy an inverse Bitcoin ETF
One of the easiest ways to hedge against downturns in Bitcoin’s price is to purchase shares of an inverse Bitcoin ETF. Horizons launched the BetaPro Inverse Bitcoin ETF in April 2021, which trades on the Toronto Stock Exchange under the ticker BITI.TO. It is available in both Canadian and US dollars.
This ETF moves in the opposite direction of Bitcoin. It trades at -1X Bitcoin’s price, which means if the price of Bitcoin decreases by 10%, the share price of the BITI.TO ETF will increase by 10%. Likewise, if the trend reverses and the price of Bitcoin starts to go up, the value of the inverse Bitcoin ETF shares will go down proportionally.
Inverse ETFs make it easy to place a bet against a security, without the hassle of having to do a short Bitcoin sale. If you’re bearish on Bitcoin, want to hedge your long position in Bitcoin, or you simply want to turn a profit in Bitcoin’s down market cycles, an inverse Bitcoin ETF is the simplest way to do so.
To buy shares of an Inverse Bitcoin ETF, you need to have a brokerage account that allows you to access the stock market. Both Questrade and Wealthsimple are excellent choices for discount brokerages because purchasing shares of the ETF will be free on either platform. Wealthsimple offers no-commission trading, making it ideal for new investors who are just getting started in the stock market or active traders who will be making plenty of buy and sell trades. Questrade offers no trading commissions when you buy ETFs, but will charge fees to sell shares of an ETF. Depending on how active you expect your trading to be will determine which platform is best for you!
If you’re planning to invest both directly in Bitcoin and an inverse Bitcoin ETF, make sure you make your investments in a way that doesn’t cancel each other out. You’re trying to profit off of Bitcoin’s price movements in either direction, which means you want to own Bitcoin when the price of Bitcoin is going up and the inverse ETF when the price of Bitcoin is going down. If you hold both at the same time in the same amounts, they will cancel each other out and both your profits and losses in Bitcoin will be 0%.
5. Lend your Bitcoin
If you don’t want to sell your Bitcoin or buy more, there is one way to make money on it: lend it out. Cryptocurrency lender platforms are gaining popularity because they give long-term Bitcoin holders an opportunity to earn passive income on their cryptocurrency. When you lend out your Bitcoin, you will earn interest on the balance borrowed. Usually, the interest is paid out as more Bitcoin. The transaction is facilitated by a cryptocurrency lending platform, which reduces, but does not eliminate, the risk of non-repayment from the borrower.
Lending out your Bitcoin is a great way to turn your cryptocurrency into a passive income source, but the payout is generally small and takes a long time to accumulate. Expect to receive quarterly or even annual payments for the amount borrowed, and in the meantime, your Bitcoin is tied up so you cannot sell or trade it elsewhere.
6. Invest in other cryptocurrencies
An easy way to invest in cryptocurrency even when Bitcoin’s price is decreasing is to choose another coin. Ether has shown better price recovery than Bitcoin after this most recent correction and has more to offer in the long term. If you’re looking to invest in cryptocurrency as both a financial asset and future technology, altcoins are the answer.
Lesser-known altcoins like Dash, Litecoin, Ripple, or Tether have more potential for growth but are also likely to be even more volatile than Bitcoin. If you’re underwhelmed with your returns in Bitcoin, Ether or another altcoin might be exactly what you’re looking for. However, if the recent dip in Bitcoin’s price is what is pushing you to sell, you might want to stay away from other cryptos!
Should I sell my Bitcoin if the price is decreasing?
Whether or not you should sell your Bitcoin when the price is decreasing depends more on your personal financial situation, investment goals, and long-term perspective on Bitcoin. Long-term investors should largely ignore volatility in Bitcoin’s price unless they are using it to find buying opportunities to increase their position. Short-term investors need to weigh the costs and benefits of selling their Bitcoin now against doing so in the future.
When to hold and when to let go
Whether you keep your Bitcoin or sell it off really depends on what type of investor you are. If you need the cash you have invested in Bitcoin for something else more important, then it’s always appropriate to sell your cryptocurrency to use your money where it will work best for you. Likewise, if you’ve made your profits from an earlier investment in Bitcoin, it’s always good to cash out and claim your winnings!
That said, if you’re bullish on the technology and potential of cryptocurrency in the long term, there is no reason to exit your position now. Cryptocurrency is a highly volatile asset and you should expect huge price fluctuations. You need to train yourself not to be scared of dramatic price movements, and often the best way to do that is to go through them without making any rash decisions!
One of the biggest mistakes you can make when investing is selling too soon, and another is trading too often. It takes discipline and practice to wait out volatility, but with an asset like crypto, it’s often the best course of action. Bitcoin is here to stay, and if you make it part of your portfolio you can choose how you want to make your profit!