First thing first, I am not debating on the value of BTC nor long term feasibility issues. I am writing this post to get all of you thinking while you are busy making money on some protection moves to prevent iliquid situation.
As some of you will noticed, Bitcoin transactions are getting more and more expensive and slower to confirm due to increasing transactions all around the world. So this got me thinking,what will happen when market crashes for crypto. Fact, all things that goes up, comes down, this applies to crypto as well.
When market crashes, there are bound to be panic selling. More miners will switch to mining other crypto or stop operation completely due to profit/loss. This will simply worsen the condition for Bitcoins to get confirmation. Demand >Supply = In this case does not mean higher value, but confirmation gets delayed. The only way to get faster confirmation is to pay a higher fee. But how high a fee to pay? 25% off the value you are trying to sell? This will cause even more problem as liquidity will be a big problem as buyer will not be able to buy the bitcoins from you too as transactions cannot be confirmed without extremely high fees. Almost everyone at this stage will be choosing the most expensive fees to pay to exit from bitcoin so the competition for confirmation will get very high. With lesser miners, this means even more issue.
Decentralization is the key feature of Bitcoin but it can also act as a double edged sword. Traditionally, central bank can step in to provide support for currency to extreme market condition. IMF is a secondary level of support. However bitcoin do not have such luxury.
While you are happily profiting from crypto trading, bear the above in mind, create a contingency plan so that your funds can be liquid and easily converted back to cash. If possible hedge using crypto futures or CFD so that your profits are protected.
Example, I made around $50k (100% profits) from Tenx pay today. But this funds are converted to bitcoin (not back to USD immediately). To protect against extreme market condition, I shorted bitcoin CFD to hedge until this amount of money get converted back to USD. As I am writing this, bitcoin is down slightly today but all this fluctuation is none of my concern since I have already hedged my position. I ended up paying a small 3% expenses (due to CFD brokerage fees) but my money gets protected irregardless of the condition of the market.
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