TAKING ADVANTAGE OF A CRYPTOCURRENCY FORK AS A TRADER
As a cryptocurrency trader, any uncertainty in the cryptocurrencies can be an advantage if you make your calculations right. A fork is one of those uncertainties that usually happens in the world of cryptocurrencies. A fork in cryptocurrency refers to an upgrade in software that brings about technical changes to the blockchain. A fork can either be a hard fork or a soft one. A hard fork is one that happens after a radical change in the network protocol of a blockchain that makes previously valid transactions invalid and vice versa. On the other hand, with a soft fork, the transactions that were valid in the previous blocks will remain valid even after the Fork. With a soft fork, there’s a consensus of making the software update that will require all those associated with the mining of the cryptocurrency to do. Whereas with a hard fork, there’s no consensus that leads to some of the key players to remain using the old software and features, which in the end leads to a new coin for those using the new suggested features. So, it’s the hard Fork that causes the most instability leading to the creation of another cryptocurrency
In this article, the Fork that we shall give our focus is the hard Fork because it’s the one that causes the most uncertainty about the coin. Whenever there’s a split of one coin into two coins, there will always be either a significant drop or an increase in the value of the primary coin. So as a cryptocurrency trader, you must understand these dynamics. Because you can only take advantage of a fork if you truly understand what caused it and which of the two coins between the old and the new will give you better returns at the end of the day. Let’s look at what you have to do as a trader to benefit from a fork in a cryptocurrency
Safety first! Make sure your coins are in a safe wallet like Nano S wallet or any other secure wallet
Whenever there are speculations of a fork, it is always necessary to make sure your current coins are safe. This will ensure that after the Fork is complete, you can claim your coins and use them to transact. I recommend never to leave your coins in an exchange during a fork. This is because, after the Fork, your coins will remain at the mercy of the exchange, and claiming them might be a bit hard. So, when you suspect any form of Fork in the cryptocurrency you are trading, it is essential you remove your coins from the exchange and put them into a secure wallet. After the Fork, you will be able to claim both coins. For instance, if Bitcoin got a fork today and you have 10 BTC in your wallet, after the Fork you’ll be having 10 BTC and 10 coins of the new cryptocurrency that is formed after the Fork.
Don’t rush to invest in the newly formed coin after the Fork
After a fork, the freshly created coin often comes with more risks on the side of the investors than the parent coin. But you shouldn’t entirely abandon the new coin. You may ideally start your investment with the coins you initially had in the first coin since they will exist both during the Fork and after. Then you start doing your homework about the benefits the new coin has over the parent coin plus what the current people using the current coin say about it. This is because the value of a coin also depends on the demand the coin has. So, a coin that has huge positive reviews will widely be demanded more hence increasing in value
Don’t rush into selling your coins immediately after the Fork
Most people will always rush into selling their coins after the Fork with a fear that the coin may drastically lose value of even cease to exists. But as a wise trader, this is the time you need to start buying (mainly the parent coin).
It should be noted that bitcoin reached its highest ever value in December 2017 just a few months after the Fork. Just before the bitcoin fork in August 2017, its value was around $3000. But during December 2017, the value of the coin was able to reach its maximum of over $19,000. The same kind of scenario happened with Ethereum after the Hard Fork in 2016. So as a trader these trends should guide you on what to do to benefit from the Fork at the end of the day
Don’t trade during the unstable days just before and after the Fork
Another thing you need to avoid is buying or selling coins a few days before or after the Fork. It is always recommended that you take at least three days before and after the Fork without trading. This is because many incomplete transactions happen during this unstable period. So be a little patient during these periods and trade like 3three days or even five safe to be safer.
CONCLUSION
Cryptocurrency trading, like any other trading decisions, are based on speculations. But analyzing the history of events in a particular cryptocurrency and other all other players is very crucial if you want to gain from instabilities like Forks. These are the periods that you have to be sober the most and take decisions after analyzing history and expectations of the future. In most scenarios, it is the old coin that will come out with a higher value after the Fork. So don’t be in a rush to invest in the new coin as most of them don’t reach the expectations of most people.
