Volatility: The greatest hindrance to making gains within crypto markets
Volatility can keep anyone on their toes in hopes of making a kill or getting out of a bad spot.
As of Monday, November 7th, the overall market cap of cryptocurrency topped $3 trillion following gains for the seven largest coins over the past week.
Both Bitcoin and Ether reached all-time highs in Q4 2021. However, the last time Bitcoin rose to high levels, it fell back several thousand dollars. Furthermore, it has undergone multiple corrections that have taken it down by half or sometimes, more. Other coins are far more volatile, bouncing back and forth wildly.
It is no surprise that the cryptocurrency market is extremely volatile. Unfortunately, many investors associate volatility with risk which is a crucial mistake that says more about human psychology than it does about portfolio management. To put things in perspective, the S&P 500’s volatility index (VIX) is widely known as the “Fear Index” – this should give you an idea of how volatility is viewed.
Risk is the exposure to loss. Aversion to risk stems from the implication of irredeemable loss, which can mean a total loss for some. However, the degree of aversion is not necessarily correlated to the actual possible loss. Volatility on the other hand is the measure of unexpected changes in market sentiment that can lead to sharp and sudden movement in price.
Whilst many may associate risk with volatility, it’s important to recognize that volatility is an actual measurement, a metric; risk is but an ambiguous concept.
If you take a look at historical price charts, you are likely to see the sky-high peaks and disappointing troughs occur at a more extreme pace in comparison to mainstream market assets.
It is no surprise that people fear crypto volatility when they see tall red spikes on the charts. The significant negative percentage change in price will undoubtedly further induce fear in people more than a similar positive percentage change would induce optimism or bullishness – this is where negative bias comes into play.
Negative bias can lead to the overestimation of the risk that a negative outcome will occur rather than embracing the possibility of a positive one. This can be a huge barrier to making gains within crypto markets. Despite upswings, investors continue to fear even the smallest of tremors in the market.
It’s important to note that volatility is the measure of movement in the markets; if there is no movement, investors will not lose money, but neither will they gain any either. Volatility has the potential to induce financial losses, but it is also what causes market upturns and significant gains.
Take Bitcoin, for example, Bitcoin has roughly quadrupled from its 2020 year-end value and has gained more than 130% this year. However, the token has also taken a plunge below $30,000 this year in June amid criticism of its energy consumption and China’s clampdown on cryptocurrency.
However, evidently, the token has made a significant recovery and has reached its all-time high as of today. According to Bloomberg, the spike in price is partly due to the search for investments to hedge risks from inflation.
Volatility can keep anyone on their toes in hopes of making a kill or getting out of a bad spot. But we can’t all be up at 2 am mindlessly watching the rollercoaster ride and neither should we settle for safety nets that will only bail us out of asset price drops and prevent us from missing out on enjoying price recoveries. Thankfully Bumper solves this dilemma by using cutting-edge DeFi protocol.
Bumper allows you to both protect yourself from price volatility and enjoy the perks of an uphill climb in the market. All you need to do is set the price you want to protect and even if the market drops, your asset will not fall below the set price. If the market picks up, your assets will rise too.
The beauty about Bumper is that you can jump in and out of protection as often as you want, hence allowing you to potentially protect your entire portfolio. It doesn’t matter whether you are risk-averse or not, Bumper will protect you from bearish market conditions and allow you to enjoy the fruits of a bullish one too!