How to Take Advantage of Cryptocurrency Volatility

Just as the stock market ebbs and flows with opportunities, the same can be said about the world of cryptocurrency. There’s no doubt that significant price swings open up opportunities for traders to earn a significant amount of profit. However, investors might not be the biggest fans of volatility as it can often result in panic selling. Despite this persistent fluctuation, it’s possible to take advantage of varying prices without trying to overly predict market prices.

Our cryptocurrency CPA makes it easy to capitalize on your returns while reducing the risks of loss.

Causes of Volatility

We all know that the crypto markets can be volatile, but what are the contributing factors to the spikes and drops in value? Even a matter of minutes can be the difference between profit and loss. This is by design as the markets themselves are highly speculative which is both good and bad depending on the trade and the investor’s overall point of view.

Supply & Demand

The supply of cryptocurrency changes as more people purchase them. In addition, the mining process produces new coins that impact this balance. For example, when more people want to purchase Ethereum, the coins increase in value as there is a limited coin supply. When there is an excess supply, the price of the coins lessens.

Hype & Speculation

Our cryptocurrency CPAs also know that speculation can factor into volatility. When a new cryptocurrency hits the market, it causes people to become excited as they hear about it. Many rush into buying and selling the new coin which increases the prices to sometimes unsustainable levels. Eventually, the speculation and hype dies down and prices become more normalized.

Production Costs

There are two essential factors that determine token production costs: the network’s power consumption and its hashrate. As competition for mining a particular cryptocurrency increases, the more difficult it is to mine and the less profitable it is.

Competition

As more and more cryptocurrencies hit the market, it can create too much competition and drive down prices. This is even true for more established coins such as Bitcoin and Ethereum.

Legal Requirements & Regulations

Another contributing factor to cryptocurrency volatility is various governing parties that are closely monitoring cryptocurrencies. As more legislation and regulation comes from these governing parties there is an increased risk to the impact it may have on the price of crypto assets.

Wash Sales

One other thing to keep in mind is the IRS wash sale rule and its relation to cryptocurrency. This IRS guideline outlines when and how investors can buy and sell securities, and tax-loss harvesting refers to selling assets at a capital loss to help counter capital gains. As the IRS deems crypto as property rather than a security, you can sell the coins you own at a loss and repurchase them without needing to abide by a waiting period.

Guidance From a Cryptocurrency CPA

With so many rules, regulations and technicalities surrounding cryptocurrency on top of an already volatile market, it’s best to reach out to a professional who can help. Our team at Founder’s CPA has helped countless individuals and businesses navigate these topics. Call us today to take advantage of our free consultations.

Post by Curt Mastio
Nov 22, 2023 3:07:09 PM

Curt Mastio started Founder’s CPA in 2017 and currently serves as the Managing Partner of the firm. After obtaining both his Bachelor’s and Master’s degrees in accounting from the University of Illinois in Urbana-Champaign Curt started his career in Big Four public accounting. Shortly thereafter Curt served as the Chief Financial Officer of Storage Squad began his stint as an Adjunct Instructor at Northwestern University’s Farley Center for Entrepreneurship and has been teaching Accounting & Finance to undergraduate students for 6+ years. In his current role Curt oversees strategy, operations, and business development at Founder’s CPA. Further, Curt has experience working directly with 200+ startups and small businesses providing accounting, tax, and outsourced CFO services. His industry expertise lies in the SaaS, Blockchain, Marketplace, and Fintech industries. He has served as a key advisor working directly with startups that range from pre-revenue to companies generating over $30 million dollars a year in revenue. Lastly, he serves a key role working directly with the firm’s clients that have collectively raised over $200 million in venture capital funding to date. Curt is also an active advisor, mentor, and investor in the startup ecosystem. He has facilitated numerous workshops, webinars, and presentations to incubators and other startup-centric organizations. He is also an active mentor for Techstars in both Chicago and Iowa. Outside of his daily professional duties Curt is actively involved with Beat the Streets Chicago and was a founding member of its Young Professionals Board. His efforts in both leadership and community involvement were recognized when he was awarded the Illinois CPA Society’s Outstanding Young Professional Leadership Award in 2020. He was also a panelist at their annual conference in 2022 where he spoke about his experiences starting and operating a public accounting firm. He maintains an active Certified Public Accountant designation that he obtained in 2014. Outside of work, Curt can be found spending time with his friends & family including his dog Rufus. His hobbies include golf, boating, cooking, reading, and attending sporting events & concerts.