August 1st Hijinks and What To Do About It

It’s only when the tide goes out that you discover who’s been swimming naked.

Segwit, Segwit2X, Hard Forks, and User Activated Soft Forks. The current quagmire of trouble that Bitcoin has found itself in is certainly an interesting one, what with all of the other things that move at a lightning pace in the crypto world. There are historical forces at work here, and the decisions made as we approach August 1st will echo out for years to come. Is Bitcoin truly self governable? Or will the “fully democratized economy” experiment come to an end? The top 5 mining pools currently own 56.1% of total hash power. Even Antpool’s hashpower by itself is enough to stop SegWit from being activated and reaching the threshold. Which leads us to User Activated Soft Forks, threats of Hard Forks, and even backroom deals such as the New York Agreement which go against the qualities that Bitcoin stands for. All of this information is plenty to take in, and it’s all relevant, especially when you’re putting money on the line. So the question on everyone’s mind is “How do I hedge?” Here are your options.

Do nothing

Sometimes, the best move is to do nothing at all.

This is what most of the market will do. They will continue carrying on with their strategy (most are bullish bitcoin) and will trade BTC/alts at their discretion, looking for more upside in the market. In my opinion this is the most dangerous thing to do, as you are essentially unprepared for whatever comes next. The attitude of “what happens, happens” is the last thing you want to do when you trade cryptocurrencies, and you always need to be a step ahead. If this is you, move down to the next option.

Going 100% Bitcoin

To the moon, baby!

Pulling out of alts and going into Bitcoin solely may represent another opportunity for safety against the volatile altcoin markets and even promise possible gains in the event of a Hard Fork. If Bitcoin does fork in any event, and your coins are safely in a private wallet (either running the BIP 148 node or using a Trezor/Ledger/wallet that supports BIP148) you have the opportunity to double your current bitcoins. While this is less than ideal in the long run for the health of Bitcoin, this does mean there may be some short term gains to be had if trading Bitcoin on a short time frame. Just keep your Bitcoins off the exchanges and in a private wallet.

 

You also have the possibility of an outcome such as SegWit being activated smoothly, at which point the price of Bitcoin, even put conservatively, will likely double or more. The downsides to this hedge are that Bitcoin has been unstable in the past, and the panic of the markets could set in – many traders are setting targets at around 1800$, and it could go even lower. If you think you’re completely safe by keep full equity in Bitcoin, you do take the risk of a huge devaluation. But what if you want more safety than Bitcoin can provide? If this is you, move down to the next option.

Cash out to Fiat/Tether

Your third option is to cash out either all or a portion of your portfolio into USD Tether (which is pegged to the US Dollar), or cashing out entirely and waiting in the wings in Fiat currency while you watch and wait for the event to pass. This carries significantly less risk than most other options, and while it does remove your ability to double your Bitcoins in a Hard Fork or make even more money in the case of an alt coin pump before the big move, it also keeps you protected in the event of a huge drawdown or deflation of the market. In my opinion this is the best move to make, to stay alive in this game and move your money out of the markets while you wait for things to settle down. Crypto will always be there when you come back.

Staying in Altcoins

Some traders feel that Altcoins are the best hedge against Bitcoin, and that they will simply not care about the movements of Bitcoin in the short term with the increased volatility of fork news. I believe this couldn’t be further from the truth. We have seen the inverse correlation of old (BTC up, alts down) been completely gone. I’ve noticed a trend as of late where if Bitcoin goes up, alts go down. If Bitcoin goes down, alts will ALSO go down! Alts devalue less when Bitcoin is pumping, but it’s still a significant risk when looking at the possible outcomes of the hard/soft forks in Bitcoin. You’re really playing with fire if you have more than 10-20% of your equity in Altcoins, and in my humble opinion, this is the most risky and volatile route to take. You may find some refuge in smaller cap alts that are lesser known, but as a direct consequence of being smaller caps most of you reading this probably won’t be in those.

My take

I believe that the best thing to do is to split your equity between Bitcoin and Fiat/Tether, with a small amount of your equity in altcoins with solid foundations (no shitcoins!) to safely protect yourself against possible incoming panic waves and large sell offs. This way, you can benefit both from Bitcoin either mooning (you didn’t cash everything out) or crashing down (you are able to buy more Bitcoin at the low price, or simply keep profit in Fiat). I believe smart money has already exited the markets, and all that’s left are smaller traders who will more easily back out of their trades and take huge losses while tanking the price of alts across the board.

Final Note

I initially meant to post this article about one week ago, but was messing around with the site so I had to wait. It looks like a large panic wave has already begun, with the total market cap of cryptocurrency all the down to 88 billion from 115 billion.

If you have a large stake in the alt markets, I’d consider reducing my exposure, even at a loss, while we wait to see where the markets go. Remember, the bear is always around the corner.

Halo out.

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