When Not to Enter the Market: Pumps, Hype and Other Disasters
Volatility is the name of the game in the world of cryptocurrencies. Sometimes, you just need to risk it. Other times, it's better to stay away.
You are feeling confident in buying a cryptocurrency. You have an eye on a token or two and want to get your feet wet. But beware, there may be moments when buying is not the best idea. If we compare cryptocurrencies to stock markets, or currency pair markets, there are moments when getting in would lead to immediate losses. While some cryptoassets recover, others may lock in funds with a depressed price for a while.
A Lot of Hype
Sure, there are constant discussions around cryptocurrencies. But if there is unusual hype, think again before jumping in. Anything can inflate the price of a coin or a token, including a video by star YouTubers. When a new coin is just listed on an exchange and becomes tradable, this may also lead to volatility. If that is your thing, great- but there is a bit more peace of mind when a coin is relatively stable than buying into an already raging bull run, just because everyone is talking about a coin.
When a Bot Steps In
The world of trading cryptocurrencies is unlike any other trading field. Bots, automated algorithms, visit a randomly selected token and inflate its price. So if you suddenly see a price spike (think a coin which goes up to $20 and back to $1 again in a matter of hours), the reason behind this may be a bot. There is no sense in buying a token mid-trend. You may not have enough time to exchange it. And once the bot has passed, a sell order may not get fulfilled. This is what happens in a traditional pump with man-made publicity, but with pump-and-dump bots, the process is faster and more damaging.
At the Peak of a Trend
No one can accurately predict or time a market. But for cryptocoins, corrections are sharp and not that unusual. So if a peak price has been stabilizing for a while, maybe waiting a couple of days to test the waters is not that bad. When the price has risen into a sharp peak, remember that what comes up must come down. There might be some buying at peak prices, but be prepared to see your holdings depreciate at least temporarily until they recover.
A coin has some extremely active hours, and sometimes volumes go down again. Placing a buy order during a buying spree and a rising price is somehow tricky. Using easy, user-friendly resources like Changelly may mean the final price would be quite different. Look for coins where volumes have stabilized on a day-to-day basis. This means that low-volume price bubbles won't form that easily. It means your orders will go through more easily with enough buyers and sellers, and you could get a better price on automatized exchanges.
Scheduled Blockchain Events
Blockchain technology is still rather new. And all updates, hard forks, and other experiments are happening while the market is live. Before going in for a coin, look around for any upcoming major event. The latest was the Bitcoin hard fork on August 1st. Some ICO news may pump up the price of Ethereum, as it is the usual exchange ramp to get new tokens. Consider ICO news as a form of pump, getting more attention for the market and creating more volatility.
When your Ramp Cryptocurrency is Erratic
To get altcoins, you will have to go through a cryptocoin of your choice. Usually, it is the big ones- Bitcoin, Ethereum, Litecoin or Dash. They are ubiquitous, highly traded and easier to store. But still, when their price fluctuates, it is harder to get a better deal on your chosen token. A token may have a different valuation when going through a ramp currency, although this price risk can be mitigated somehow by changing the ramp currency.
Right After an ICO
Sure, some ICOs start with a permanently depressed token price that spikes down the line. But others go through a rapid rise as the ICO publicity has not worn off. And then the price falls and lies low for months, on low-volume trading. While some investors may like to hold a new token for months, there are ICOs that never really recovered from the peak.
Curiosity, a lot of time on your hands- and you turn into a cryptocurrency weekend warrior. Sure, markets are sometimes calm on weekends, but then Monday comes around. Exchanges open, first in Asia, then across the globe. And your chosen token may see rapid selling. Some exchanges have lower fees on weekends, and volumes may go down temporarily. But it is better to use the rule of thumb for stock markets, which is to wait to around mid-week, and see where the more active trading is leading your preferred token.
When you Just Don't Feel Ready
There is no right time to buy a token. But if you suddenly dislike the idea, don't go on with the purchase. Instead, choose a testing account or simply track the market. That way, you would have better knowledge for the next token you like. And never forget to do your due diligence, so in the end, you can recognize why you like a token. You will be less guided by market sentiment and more by the underlying project potential. Try to act dispassionate and get used to the levels of volatility.