Authored by Mark Decambre via Marketwatch


Is this the day of reckoning for bitcoin and other cryptocurrencies?

The price of a single bitcoin was tumbled on Tuesday, off 15% at around $11,539 after dropping as low as $11,039.40, underlining a broad selloff among the world’s virtual currencies spurred by nagging fears of increased regulatory scrutiny in South Korea and elsewhere.

That leaves the total value of cryptos tracked by at roughly $565.7 billion, down more than 30% from a peak reached last week.


Bloodbatch-1-300x260 Bitcoin bloodbath highlights these defensive cryptocurrency strategies


To be sure, there are still serious and legitimate doubts about the viability of such volatile, decentralized assets like bitcoin BTCUSD, -25.50% that have been described as in the midst of a speculative bubble that is likely to end in tears.

That said, crypto traders, who have endured a number of cycles, sometimes adopt tactics to protect against loss or to get in to position for future trading, similar to those used by investors in the Dow Jones Industrial Average DJIA, -0.04%  or the S&P 500 index SPX, -0.35% gold futures GCG8, +0.29%  or fiat currencies.

Given the atmosphere of bubbliciousness surrounding the sector, none of the following should be taken as investment advice.

Still, they offer a look at how some crypto traders think:


Many cryptocurrency investors have no intention of selling bitcoin or their other digital-asset holdings until cryptos supplant fiat currencies, or until they “moon”, reaching astronomic values, whichever comes first. Here’s an explanation of the term hodl.

The problem with this strategy is the bitcoin and others could potentially sink to zero, in a worse-case-scenario. That would be particularly crushing to investors who have recently piled in.

Take stock of the crypto dip

For those feeling lucky, a decline in the overall value of cryptos may present what some deem an opportunity to buy assets cheaply. That is if you are assuming that bitcoin’s value will eventually be multiples higher from where it sits now and that you have the financial wherewithal to endure a protracted downturn.

Traders buy $USDT

Buy the equivalent of dollars DXY, -0.02%

Investors can exchange the vagaries of, say Ripple or Ether coins, for a blockchain based asset known as Tether. Tether is a cryptocurrency that it pegged to the U.S. dollar held in reserve. Tether was coined to help facilitate national currency transactions on the blockchain, the distributed ledger technology that underpins crypto assets, but it has become a popular investment during downdrafts, market participants say. Here’s a look at Tether’s trading compared with bitcoin over the past three months. Worth noting is Tether’s relative stability and a slight inverse correlation with bitcoin when bitcoin falls. That means it tends to rise slightly when bitcoin slips, suggesting that investors are buying “USDT” and unloading other currencies.


bloodbath-2-290x300 Bitcoin bloodbath highlights these defensive cryptocurrency strategies

Some buy $NEO, Ethereum

Assets that have offered the promise of real utility and features, like smart contracts, have enjoyed a comparatively better run in 2018 than bitcoin. Perhaps that is why investments like Ether coins on the Ethereum blockchain and NEO, considered Chinese Ethereum, are attracting investment appetite. Prices for NEO which ranks as the eighth most valued cryptocurrency have remained relatively steady. NEO also offers some other attributes that make it an appealing buy during a downturn, including a dividend-like offering for certain holders.

What are other market participants saying?

“All those strategies are valid and sensible moves by any traders and analogous to traditional market defensive strategies of gold, utilities and buying dips,” said Charles Hayter, chief executive officer and founder of CryptoCompare, a company that provides data and analytics about digital currencie

“Think cryptos are here to stay and that we’ve only just started to see the move from the Wild West to the incumbent space. Wall Street is still to make its mark in the cryptosphere,” he said.

“I would say traders probably sit out the volatility for a couple of days. Sure buying NEO is an option, but when markets correct like this, most will sit and watch, rather than ‘catch a falling knife’,” said Iqbal Gandham, U.K managing director at eToro, a trading platform.

“The cryptocurrency industry has seen such adversities before. Indeed, the fluctuation of value in bitcoin that we see today is not unprecedented,” Abhishek Pitti, CEO of Nucleus Vision, a blockchain-based retail loyalty program, told MarketWatch last week.



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