Cryptocurrency’s value is very fluctuating. It’s just the way it is. it. It’s been this way since the inception of the business and is one of the reasons why the traditional experts in finance have been skeptical about the growth of digital assets such as Bitcoin or Ethereum.
If you’re well-informed about how you handle your cryptocurrency. There are numerous ways to limit the volatility associated with cryptocurrency.
Markets: The Wild West Of Markets
The idea of the “Wild West” comes from the period in American history in which Western American states were not governed by laws. This is quite similar to how cryptocurrency markets operate in the present.
When we compare cryptocurrency markets with traditional financial markets, we can see some stark distinctions between the two. For one, cryptocurrency markets function all day, every day of the week without break, pauses, halts or emergency stop buttons.
They are also international in their nature, which allows everyone to participate at any moment. Basic trading does not require a licence, and in many instances, there is there is no identification.
The types of assets available on cryptocurrency exchanges range from the virtual metal of the cryptocurrency (Bitcoin) as well as an array of currencies that you’ve never heard of.
A fundamental aspect of markets is the risk of losing money. Cryptocurrency markets have been infamous for their massive losses over the past decade.
However but losses are only a small part of the tale. Another aspect is the huge opportunity for profits. If you’re an experienced trader then you’re averse to the volatility of markets, as it’s your chance to play the market and earn profits. This article outlines various strategies that you can employ to manage the risk that’s inherent in the cryptocurrency market.
Just HODL
The abbreviation HODL that means “hold on for dear life” is possibly the most crucial trading strategy that a novice investor can utilize to increase their profits.
Although it’s not the fastest way to make money however, it’s certainly solid. The article from investor’s magazine precisely explains that the first post on which HODL first appeared was a mistake made by one Bitcoin investor who was unsure of how to trade day-to-day.
In the years since, the approach as well as the underlying philosophy and strategy has been discussed as well as shared and adopted by millions of people.
HODLing is definitely a way to combat volatility. The way to think about it, which the strategy translates into can be described as “don’t worry about it, if you wait long enough, it’ll all work out”.
It’s too early to determine whether this is the case, especially for investors in cryptocurrency that began trading in January of this year. The general sentiment associated the phrase HODL is the classic phrase “Keep calm and carry on”.
Be Aware Of Your Emotions
Two emotions that you should be aware of are fear or greed (fear of not being able to enjoy) as well as anxiety or fear. Fear and greed can occur when the market rises suddenly.
This could be the day when the market is up 10%plus, and you think it’s the perfect moment to invest because you believe this is the bull market which was promised.
In most cases there will be a drop following a green day in the market, which can cause you to believe you’ve made a mistake.
This is when anxiety and fear take over and you’re forced to sell your shares at less than the price you paid when you first been in the market.
What happened to you is exactly what everyone else has been through at one point or time during their professional career. You’ve purchased high and then sold low.
The trick is managing your emotions. Establish goals, targets and guidelines, so that you’re trading and investing in a way that is structured. If in doubt, dive back to the HODLing strategy.
If you are convinced about the technology behind cryptocurrency, then it’s just a matter of time until the market is back to the point that you’ve invested.
Stablecoins
Stablecoins represent the method used by cryptocurrency market traders for combating the volatility. Stablecoins are crypto currencies that hold their value.
They typically are tied to the value of a FIAT asset, such as the USD or CNY. They serve as a means to enter and exit the market on the more volatile asset such as Bitcoin as well as Ethereum.
Since 2017, stablecoins have been highly sought-after for holding and in storing trade returns but without completely removing cryptocurrency.
For instance that for every 10 percent that the market goes up it is possible to sell the equivalent of x% of your holdings to ensure you are able to keep the profits regardless of.
If the market falls below your sell-point then you can choose to purchase again at a lower cost. If the market rises then you’ll be pleased that you’ve made profits.
It’s essential to recognize that you’ll never gain a lot of money from stablecoins, either.
Staking And Lending
Staking refers to locking your assets to gain an investment return by the amount that of money you’ve “staked” to the network.
A lot of blockchain-based networks employ stakes as a way of reaching consensus within the network. In exchange to secure your coin and also participating in the consensus process it will pay you by granting you more staked token.
The advantage of this is that you’ll end with a larger portion of the staked currency, and usually receive the same daily or weekly pay-out.
Therefore, in order to reduce the risk of volatility, you should increase the stake you have in the investment, and gradually hold on to the more you can even in the worst case scenario, the gain from taking a stake will compensate for any loss you incur due to market volatility.
Additionally, if you’ve locked your tokens in an staking contract, you’re forced to adopt the HODL approach, since you can’t eliminate our tokens until they “unstake” them which typically means waiting until you can gain the transfer rights to your tokens.
The lending process is similar to staking however it usually requires a third party centralized to facilitate it, while the staking process is conducted in a distributed manner.
The business uses the money they’ve borrowed for any reasons they think fit. In general, they’ll lend the money to other purposes as collateral or accept the loan because the interest rate, which they’re paying you is more than the rate they’d otherwise receive from a financial institution. This venture is a step into defi (Decentralised finance) territory, which is a hot issue.
Parting Thoughts On Volatility
In the beginning of this article that cryptocurrency markets are like the wild west. It’s true. These markets aren’t for those who aren’t able to handle it. If you can’t accept a loss of 40 or more, you will not be able to see the gains of 200.
It’s too early to determine whether cryptocurrency markets will develop until they can achieve the same stability as in traditional stock markets. However, certain things are certain to remain.
A myriad of coins and exchanges, no-cost market entry and global cross-border trading and 24 hours a day, 365 days a year trading are all on the table to be around for the long haul.
In times of uncertainty, keep your eyes on your life.
