Part of what has cemented cryptocurrencies on the map since they exploded into the mainstream investor market was their volatility. Investors poured into Bitcoin when, in November and December 2018, the value of cryptocurrency increased in exponential terms.
However, this volatility is a double-edged sword, and the cryptocurrency market has shown that in 2018 the price of Bitcoin has lost over 50% sometimes from its year-end price of $ 13,000.
The cryptocurrency market also suffered from the negative effects of Bitcoin's volatility because, due to falling prices, even the volume of Bitcoin exchanges and even the interest in the realm of digital money diminished. The danger is that volatility can cause a great exodus of investors who seriously ill hopes of other cryptocurrencies obtaining the status of mass adoption.
Volatility should be the focus of attention if there must be a future in which cryptography is widely used in everyday instances.
However, it requires a lot of courage and some tactical know-how to successfully navigate the lows in order to keep safe and sane, as well as contribute positively to a thriving cryptic economy.
Because volatility is important, but deadly
There is a lot to be said about the role played by volatility in helping cryptocurrencies reach the mainstream market.
Cryptocurrencies and Bitcoin, in particular, have become the main media stream as a tool of the dark web when the infamous Silk Road has been closed. Back then, it was far from being considered a good investment for the types of Wall Street, but they soon joined the party.
All of a sudden, the banks, thought leaders of banking and financial institutions all had an opinion on Bitcoin – many of them thought it was a fashion, or even rat poison and too much flyer to take it seriously, but conversations about Bitcoin were starting to be held in investment circles.
The Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) introduced Bitcoin futures trading on December 18 and 10, 2018 respectively. It is said that Goldman Sachs and Barclays are examining encryption banks and people are not has never enough of this crazy activity that could double the price in a few weeks.
Stories of bitcoin billionaires and night millionaires have grown, and individual investors have been inundated with part of the huge wave of Bitcoin mania.
This is why volatility has been so important in establishing cryptocurrencies as a potential asset that could also be adopted as a currency in the parent company. However, this same volatility is also what could kill that goal.
Itai Cohen, CEO of Homelend, a mortgage crowdfunding platform, has noted to Cointelegraph that in their property and mortgage, they see volatility as something that drives investors away from the cryptocurrency market and into more stable investments such as the real estate market. Their goal is to try to transcend wary real estate investors as they appeal to a new and bolder investor who embraces this volatility.
"The high volatility of crypto-assets is the result of investor dependence on the so-called" adoption syndrome ", in which the perception of the value of an asset is mainly based on expectations of its adoption by the community . "
"I think this is a key factor, all the more so because perceptions are much more volatile for a digital asset than" real "assets such as gold, real estate, corporate profits or government currencies – in other words, there is a big gap between the physical and the digital world.
"The mortgage industry is a perfect example of an industry that seems to help fill in gaps, like real estate or any other industry that has a" real "world support.
The problem is that if people get into crypts when the market is at full bullish, taking advantage of the upward volatility, they have to be strong enough to bear it at its most bearish level, and volatility makes a big jump.
How to manage volatility
Managing volatility is not new for institutionalized investors. Activities, stocks, bonds and even forex are subject to fluctuations, but the problem is that the volatility of cryptocurrency is out of the rankings.
Furthermore, investors in cryptocurrency are often new to the game and have never experienced the range of swings before – watching their money grow and shrinking considerably from hour to hour.
As the stock market is much longer than that of cryptocurrency, it is a good starting point. Their advice on how to handle these lows and maximum levels are relevant and can be transferred to encryption.
Just like in the cryptocurrency space, there are long-term investments and short-term investments in the stock market. Roger Ma, founder of Lifelaidout, a certified financial planning firm in New York, explained how, in inventory, it is important not to forget your time horizon:
"Investing in stocks rewards you in the long run: these daily changes in the market should not affect you".
This is reflected very much in the same way as the so-called "Hodl" strategy for cryptocurrencies. In essence, the strategy says that it is not necessary to let "daily changes affect you" rather than simply cling to cryptocurrency to avoid volatility altogether.
But he also mentions another strategy that shares similarities with cryptocurrency – the average dollar cost. With this strategy, you buy an investment on a fixed schedule. This investment strategy essentially prevents you from making reckless movements in and out of the market.
"As long as you have a good plan and you've thought about the time horizons you need money, little moves in the market should not interest you."
The Dow Jones has been known for its big drops, even in the course of a single day. Scott Hanson, founder and senior partner of Hanson McClain Advisors, made an important note on this type of drops.
"A 250-point decline for the Dow today is just a one percent decline, but the same drop when the Dow was at 10,000 would have been a 2.5% decline."
This basically speaks of the bigger picture and how important it is to reduce the zoom of the graphs. For Bitcoin, only six months ago, in October 2017, people wildly celebrated that Bitcoin had broken the $ 6,000 mark. However, some times already this year, people were panicking that Bitcoin would hit $ 6,000.
But there are times when even the kryptoned investors feel the blow and want or profit, or a maximum, and escape the market. But escaping the market for an investor is difficult if that money is designated for the assets.
Many have seen the value of diversifying their portfolios, not only through cryptocurrencies, but also to hedge their bets with more stable assets, especially gold.
Gold is an asset that is almost synonymous with stability and, as an antithesis, has a long history with cryptocurrency. There have been times when it is clear that gold and cryptocurrencies have inverse relationships with the precious metal that speaks in times of crypto-bass.
Daniel Marburger, director of online gold retailer Coin Invest, said that sales of gold coins increased fivefold on January 16th, at the same time that cryptocurrencies crashed.
"[Tuesday] It was a crazy day, "said Marburger, adding that" emails and telephones were not firm with customers who asked how they could turn their crypt into gold ".
Even before cryptocurrencies, gold was known to peak in times of stock market volatility, as its value tends not to move in line with other assets such as stocks or property.
Liquidity is another security that cryptic investors easily flock to when the cryptocurrency market takes a dip, since it is as simple as selling the digital currency for something that is at least usable in everyday life.
The problem with converting the digital currency into cash is that the value of money is constantly changing, but slowly, losing value, and as an investable asset, it is not a good bet.
Likewise, as a safe haven for cryptocurrency, the problem is that a dreaded cycle of low selling and high purchase can develop while investors sell their assets in times of low, and buy them back when the market is booming again. and, probably, evaluated above.
Image source: U.S Bureau of Labor Statistics
The bonds issued by governments are generally perceived as safe haven investments since the general opinion is that countries are often more financially secure than companies and more stable than cryptocurrency. However, if the bond issuer can not meet interest payments or repay principal when it is due, it could lose the entire investment, and it has already happened before, even in big economies like the Chinese ones.
All these safe havens primarily have the ways in which a crypto-investor can escape market volatility and protect his assets from falling out. However, the main problem is that they are taking their investment totally out of the crypto economy, and with volatility, it is often difficult to turn back, and profit, when the markets are green.
Guy Melamed, CEO of Zeex, a company that seeks to mitigate crypto-volatility by turning them into things like gift cards, reiterates the fact that leaving the cryptomarket totally looking for a safe haven means that there is a bet on getting back when is the right time
"Although the most important cryptocurrencies like Bitcoin and Ethereum have made huge progress in recent years, the latest dives in the market have had many investors looking for safe havens in which they can park their wealth without leaving the cryptography market."
"Many will be turning to conventional havens such as gold, stable currencies and exchange-traded funds, but it is difficult to buy lows when the whole herd moves in the same direction.We found in our work is that the encrypted gift cards # Inflation can be stable because they are related to inflation and not to speculation. "
A duty to resist the storm
There is evidence to suggest that Bitcoin's volatility is diminishing, that wild swings are not so wild and that they are actually becoming more manageable over time. This has a lot to do with the increase in the adoption and distribution of Bitcoin across a wide and varied market.
On the other hand, volatility is sometimes appreciated as well. Arthur Hayes, CEO of BitMex, a Bitcoin merchant exchange, trades in volatility and considers it important for space.
"I'm a volatility trader at the end of the day," said Hayes. "We make our money if they are volatile, if it goes up or down, if Bill Gates calls it fraud, then it shortens – I do not care, or if you think it will be a million dollars in a few months, well, buy it, it does not matter, we limit ourselves to trading. "
But according to Daniele Bernardi, adviser of Volactive volatility fund and CEO of PHI Token, volatility is lessened, and it is because not all are after that "three-digit return". Bernardi told Cointelegraph:
"The extreme volatility that characterizes today the cryptoworld is clearly linked to the high returns they have generated in recent years.If we want the crypt to continue to offer triple-digit returns as an asset class, it is inevitable that volatility remains high. if the same is also linked to liquidity, for which the cryptic community will inevitably grow, we will mitigate the returns of volatility ".
"This is already happening, because the volatility of Bitcoin in the early years of life was more than 300 percent in the year, while it now varies between 50 and 100 percent in the year. assets that have similar volatility except for the volatility of the VIX index, which in turn is an indicator of volatility. "
It requires those who are invested in Bitcoin and other cryptocurrencies to stick to it and work through volatility so that digital currencies can survive and thrive.
The mainstream adoption has begun in earnest, but it requires a lot of hard work from those who are on the market now, to stay in it and to overcome this storm. Once volatility is under control, a new wave of adoption can surely begin.