Let's Talk—If Bitcoin Is Heading Towards a Bubble-How Will You Hedge Your Risk?

Bitcoin has rallied beyond anyone's wildest expectations! This year Bitcoin and alt-coins have made it to the newsrooms of mainstream media. There is no dearth of people known to us in our lives beginning to offer price predictions or expectations of how high it will go. It's already happening!

Typically in a bull market situation most predictions about prices tend to come true. There's only one way the price is going, and that is up! Your fears are allayed by wide spread pragmatism.

^Source

You may think of me as a skeptic, but I'm a realist. As an investor, for all practical purposes I like being prepared for a worst case scenario. Hence, I cannot stop myself from asking the question, 'What if these rallies are heading towards a major bubble?' If so, 'How do I protect my investments?'

I have a decent risk appetite and in the past 6 months regular trading has allowed me to increase the % of Bitcoin in my crypto portfolio. This has also allowed me to increase my stake on Steemit. Given the recent set of rallies, every one of those investments have paid off! Steem has doubled up in recent weeks, which is a wonderful for us all. I've also invested only what i'm prepared to lose 100% so I'm as 'safe' as I can be!

When it comes to market dynamics and government policies, things change quickly in this industry. Crypto is a fast paced industry where things change by the minute, not days, weeks or months. Volatility and low-volumes causes massive spikes in price, and massive dips as well. This can trigger all your stop losses within seconds—the Ethereum flash crash on June 21 comes to mind! However, I've generally sold a little at the top to cover my principal investment amount.

@acidyo wrote in his post that many cryptos today are highly overvalued and I agree. In most cases, there's a massive jump in their valuations overnight and some of them barely have a working product in place. I'm not complaining though, clearly we're all in profit right now. Having said that...

As a cryptocurrency enthusiast and a bit of an anarchist, I'm not pleased with the idea of holding a lot of Fiat currency anymore. Most banks in India offer a decent 6% rate of interest on long term fixed deposits-this is good but we're down from ~10% 2-3 years ago.

Indian banks have had a good run without any major bankruptcy issues and it's quite reassuring to hold your money in the bank. But then it doesn't grow, leaving me to battle inflation all over again, and inflation runs higher than the returns on your fixed deposits.

Real estate speculation is cumbersome. Blockchain technology is here but you cannot really run a smart contract to buy/sell any real estate within minutes. Atleast, not in India. That leaves me with little options to hedge my risk. The cautious investor in me, made it a point to save some money aside and hold it as Gold.

In the traditional sense, this implies that I have to cash out, pay a LOT of tax and then buy Gold. Losing a fair amount of my hard earned income. Tomorrow if I were to sell this Gold, then I would incur more taxes and fees before I receive what is mine.

In the cryptocurrency world I've found Vaultoro.com to be a good service to buy and hold Gold as hedge towards a crypto-market crash. With Bitcoin you can purchase Gold at Vaultoro. Over the past year or so that I've been using it, it's proven to be a safe place to store some funds for a rainy day scenario. If you haven't planned for the worst case, then trust me it's always around the corner.

I've built an emergency fund and used it up a few times before re-building it again. That's just how life is! Preparing for the worst case ensures continuity and longevity. It gives you a base to firmly stand on if there's an unexpected turn of events. I find it important to plan my personal finances very carefully and more often than not, I give it my highest priority.

Frankly, Bitcoin bubble is a hypothetical scenario, but then again so is our expectation that Bitcoin will touch $100,000 soon! Either could happen.

But for the sake of this discussion, let's go with the hypothesis that Bitcoin may crash. In such a scenario, dear readers I'd like to know how you plan on hedging your risk from a major crypto market crash. I'm sure our discussion can generate some interesting responses and we can learn from each other.

If you want to safeguard your crypto-money online, are there any better options than Gold to hedge your risk against a downward trending crypto-market? I look forward to your responses in the comments below.