Top tips is a weekly column where we highlight what’s trending in the tech world today and list ways to explore these trends. This week, we’re sharing three ways to know when to pull out on your crypto investments.
Let’s face it; although gambling might be considered a livelihood-threatening addiction, everyone likes to gamble on something or other. For some, the stakes are high. Others prefer to put very negligible things on the line, with the assurance that even if they lose it all, it won’t impact them negatively. Either way, it’d be safe to say we do it for the thrill of the uncertainty of what’s going to happen to our investment.
When you invest your money in anything, you’re pretty much taking a gamble. Stock brokers and enthusiasts alike have made a killing in the stock market, which has existed since the 1600s. Digital stock trading has been well-received in the past decade or so. Enthusiasts can buy and sell shares in digital currencies that keep changing in value, thanks to apps that make trading accessible to everyone and their grandmothers. The UIs of these apps are straightforward and easy to use, and the payout is hassle-free and instant, encouraging more and more people to hop on the bandwagon.
But life isn’t always peachy in Cryptoland. There have been so many crypto scams in recent times that are pushing people away from crypto trading, and enthusiasts have become more apprehensive and reluctant to invest and trade just because something is trending. Pump-and-dump scammers recruit influencers to hype up a cryptocurrency, which in turn drives up its value, and they then proceed to dump shares by selling their stock at a much higher rate.
It is worth noting that the crypto market is highly volatile, and your investments could prove to be disastrous if you’re not on top of your game. Here are three telltale signs of impending disaster to watch out for while tracking your investments.
1. Your crypto is on the news for all the wrong reasons
Any PR is definitely not good PR when it comes to cryptocurrency. One of the first signs to look out for is if there is any negative news regarding the coin you’ve invested in. Any negative PR from the corporate side, top management, or even the founder could instantly bring down the value of your coin.
Something else to look out for, in general, would be government regulations or sanctions on crypto trading. Digital currencies have become a safer way for entities to make nefarious under-the-table transactions. Governments are becoming increasingly wary of this and are preemptively imposing sanctions and regulations on crypto trading and digital asset ownership in general.
Finally, you must keep an eye out on the news for security breaches. Crypto security breaches can prove to be expensive and can negatively impact trust in that particular asset. In September 2023, hackers stole $200 million from Hong Kong-based crypto company Mixin. The data breach resulted in overall losses of close to $2 billion. So the next time you see a crypto-related security breach in the news, it’s time to cash out as soon as possible.
2. Technical indicators aren’t looking good
Technical analysis is a powerful tool for crypto traders and enthusiasts to figure out patterns, market trends, and dynamics to make calculated decisions. By analyzing charts that provide data on the trend, volume, and momentum of trade within the market, a trader can get a holistic picture of how the market is and make decisions based off of it.
The Relative Strength Index (RSI) is a popular technical indicator that measures a cryptocurrency’s price movement. It can give a trader a clear picture of whether an asset is being overbought or oversold by comparing its gains to its losses. This works on a scale of 0 to 100, and anything above 70 is an indicator of an overbought asset, while anything below 30 is considered oversold.
Bollinger Bands® are another indicator and a great way to measure market volatility. They are represented by three bands—one middle band that shows the average market price of a currency over a period of time, known as the simple moving average (SMA), and two outer bands that represent the market volatility by showing the deviation in price over time. When the bands are wider, it could mean that the market is getting more volatile, while shorter bands represent stable conditions.
3. Negative sentiment due to market manipulation
Market sentiment indicators such as market surveys and various sentiment analysis tools are resourceful ways to get an early assessment of the shift in sentiment and dodge a bullet if there is any negative impact due to this.
Pump-and-dump schemes are quite common in finance and the crypto market is no exception. Over 24% of cryptocurrencies launched in 2022 showed signs of pump-and-dump activity. Judging by the meteoric rise in influencer marketing, this is a trend that will only keep increasing.
In 2022, media personality Kim Kardashian was fined $1.26 million for not disclosing the fact that she was paid $250,000 to promote the EthereumMax coin. Popular YouTuber and WWE Superstar, Logan Paul has been in the news recently for his CryptoZoo scam. Players were told they could earn NFTs by hatching eggs in game, however the reality was far from different. Secret in-app purchases resulted in many users experiencing massive losses, and with declining PR, Paul was forced to announce compensation for those who lost money investing in the game.
Don’t ignore the signs
Much like stock market trading, crypto trading has its own pros and cons. While smart investments can yield bountiful dividends, one cannot blindly invest in everything under the sun and expect to see results. Trading is a dangerous game, and having a good grasp of the rule book is always a plus. Keeping a watchful eye over your investments is highly recommended, and we need to ensure that we’re paying attention to what’s going to drive stocks down. The signs are all there; we just need to be mindful enough to pull investments out in time.