Have you ever bought some cryptocurrencies, Bitcoin for instance, and then a few hours later, the price either climbs by several points or slips low by some figures? Well, it isn’t strange; it depicts volatility – how large the price of an asset can swing from the mean price.
The volatile nature of crypto assets is a huge part of the market. In fact, it is an unavoidable feature of the crypto and stock market alike. All cryptocurrencies are bound to experience fluctuations in their market value, with prices swing either high, low, or by a few points.
When volatility pulls the price of a digital asset downwards, it results in a bearish and results in losses for investors who entered and invested when the price of that asset was either stable or bullish. The reverse happens when volatility drives the price of an asset upward.
Whatever the case may be, it can be difficult to deal with crypto losses, especially if it’s by a high percentage. We can’t stop crypto prices from fluctuating. However, sourcing effective ways to tackle and cope with these swings is the best bet to triumph.
To understand how to cope with crypto volatility, we must understand what it is and what causes it.
What is crypto volatility?
Volatility measures how high or low the price of a digital asset (stock or cryptocurrencies) moves over time. These shifts could be an upward or a downward dimension. Either way, such intense moves could, in turn, pose a great feat or risk to crypto investments.
Imagine if an investor buys a crypto asset at $40 and the price swings up to $60 in less than 24 hours, it means he gains 50% in profit. Imagine loss investors who heavily invested in Bitcoin before it crashed to about half its in January 2022 bore.
What causes crypto volatility?
Crypto volatility is majorly due to the influence of the market forces, simply tagged as demand and supply. For instance, the value of the highest-priced crypto coin in the crypto space often responds to the call of demand and supply with either an increase or a decrease. Also, the likes of investors, institutional traders, social media puff, government laws as well as members’ sentiment can encourage crypto volatility.
How to cope with crypto volatility
While there are so many investors with the orientation that a higher degree of volatility in the crypto space is a possible avenue for better returns, others have run through the pains of not knowing how to get around this. So, what are possible pathways to help cope with crypto volatility?
Embrace the idea of fund diversification: The various areas of the crypto space are directly linked to one another. For this reason, a change in one is likely to cause a response in the others. Hence, crypto as a long-term investment should be one amongst many other investments to be involved in. As they say, you shouldn’t have to fill up all the eggs in a basket. Thankfully, we now have other areas such as non-fungible tokens (NFTs), Decentralized Finance (DeFi), GameFi, Play to Ern (P2E) and more. Sole dependence on crypto might not inspire the right response to diverse fluctuations that may come along.
Learn and understand when to hold: The advice of holding on to investment (HODL) until there is a substantial gain has become an anthem in the crypto space. As tough as it may sound, this is one means to save yourself from that detrimental loss of funds. There would be a constant swing in the market value of coins. A withdrawal of funds by an institutional investor, otherwise known as a whale, can cause a drastic shift. However, keeping calm rather than harshly responding to these sudden instabilities can save a lot of trouble.
Avoid making emotional decisions: Tons of people try to employ the emotional means of selling off certain investments. There is always a story to evoke the fear of missing out. Such patterns can lead to bad decisions making, causing you to concentrate on the what-ifs based on the fear of missing out (FOMO) syndrome rather than focusing on the exact pointers backing the investment.
Stay on the safer side with stablecoins: Stablecoins are crypto-based assets whose values are tied to national currencies (such as the US dollar, Euro, Yuan, etc), precious metals such as gold, or cryptographic algorithms. Because these coins are backed by other assets whose values are not prone to excessive fluctuations, they are much more stable than other regular coins. Therefore, stablecoins are more stable forms of investment.
These are just a few amongst the many pointers to help cope with crypto volatility. Virtual investment isn’t a difficult path to tread as many may believe. Learning all the major rules may not save you all the time but it will aid in improving your investment while minimizing the rate of losses.