Managing Editor’s Note: Today, we’re turning things over to colleague Larry Benedict – a market wizard and legendary hedge fund manager.
Today, he’ll share the smarter way to play bitcoin so that you can protect your portfolio against volatility.
Read on to learn more…
The Smarter Way to Trade Bitcoin
By Larry Benedict, editor, Trading With Larry Benedict
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“Bitcoin on target to hit $100,000 by year’s end…”
That kind of headline gets your attention right away.
And it’s appearing a lot right now with Bitcoin (BTC) trading near all-time highs.
Now, the $100,000 figure might tug at your emotions about all that potential profit on offer.
Yet it represents about a 40% gain from BTC’s current levels (around $70,000). And there’s well over half a year for that to play out.
So the truth is, we’re not looking at a life-changing gain.
Especially when you consider cryptos’ volatility…
When BTC and other cryptos tank, they’ve plunged as much as 60–80%.
That can be hard to remember when Bitcoin’s soaring… But anyone who discounts that fact may face a painful reality down the road.
That’s why I trade BTC differently than most.
The way I do it can hand you returns in a short time. But most importantly, I do so with a clear cap on any risk…
Putting Risk Management First
For some folks, risk management is an afterthought.
Some might not even think about it at all.
They’re far too interested in the money they can make. They don’t want to worry about what happens if things go wrong.
And believe me, when I started out in the markets 40 years ago, I made the same mistake.
I blew up multiple trading accounts before finally realizing that risk management is at the heart of any successful trading strategy.
Learning that – sometimes painfully – put me on track to where I am today…
I went on to have 20 successive winning years in a row. Barron’s ranked my hedge fund in its top 1%.
That led Jack Schwager to feature me in Hedge Fund Market Wizards along with some of the all-time most successful traders like Ray Dalio and Joel Greenblatt.
And now I’m taking that trading discipline to the crypto space.
The way I trade BTC differently and cap my risk is that I don’t actually trade BTC at all…
Instead, I trade tickers that give me exposure to the BTC price.
And believe me, that’s a crucial distinction…
If I owned BTC outright, I’d have to store my holdings in a digital wallet or with a crypto exchange.
If I forget my password or lose my wallet, then my money evaporates into thin air.
Plus, we’ve seen plenty of heartache in the news about crypto fraud, theft, and Ponzi schemes – not to mention exchanges getting hacked or collapsing.
And as I mentioned above, BTC has crashed multiple times throughout its history. So even just holding a volatile asset like this has its risks.
For someone like me whose career was made on strict risk management, I needed to find another way.
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Higher Returns for Less Risk
Rather than owning BTC directly, I trade it using tickers like the ProShares Bitcoin Strategy ETF (BITO), which tracks the BTC futures price on a regulated exchange.
That also means you can do these trades in a regular brokerage account.
I call this strategy “Bitcoin Streaming.”
And we’ve been able to make an 87% gain in just five days, as one example… when BTC only gained 13.5%.
Another time, we had the chance for a 72.3% return when BTC fell 18.7%.
As you can see, we can profit by trading BTC in both directions. That’s another vital distinction whenever Bitcoin decides to drop off its peak…
And unlike holding Bitcoin during a crash, my strategy enables us to know what our maximum loss could be before we place any trade.
So higher gains can hit our accounts… with tightly controlled risk. Together, that makes this a powerful trading strategy.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict