By Peter Bergman (MoneyAmped.com)
Digital assets are now a big part of the investment portfolios of both individual investors and large financial institutions. Even though cryptocurrency investments are becoming increasingly popular, traditional financial professionals continue to warn their clients about the risks that come from the market’s inherent instability and lack of clarity. So, doing a lot of research before investing or doing things like slot machines or video poker at Bitcoin casinos is essential. This article aims to look into how volatile cryptocurrencies are before investing in any digital currency or gambling in a crypto-based casino.
Defining volatility
The term “volatility” in financial markets pertains to fluctuations in the value of a given asset. Fluctuations within a specific price range can yield advantageous outcomes. Nevertheless, fluctuations in volatility can be significant and uncertain within the cryptocurrency market. A market that exhibits regular price fluctuations and trading activity while remaining active fulfills various objectives, primarily generating lucrative investment prospects. If traders predict a decrease in the valuation of Bitcoin, they may engage in a “short” strategy by procuring it at a reduced price and vending it at a higher value. Assets that experience significant fluctuations in value over a brief period are deemed to have a high level of volatility.
Acknowledging the importance of the volatility of cryptocurrency
Cryptocurrencies are more volatile than traditional assets because they are digital and decentralized, their market capitalization is smaller, and the regulatory environment is uncertain. Because cryptocurrencies are inherently hard to predict, it is essential to consider volatility when deciding if and when to invest in them. When the value of a cryptocurrency coin or asset goes up and down often, this is called “high volatility.” Investing in an asset that changes a lot comes with risk. On the other hand, a digital asset with less volatility is also associated with less risk, which makes its price relatively more stable.
The Significance of conducting research
The psychological phenomenon called “fear of missing out” (FOMO) is a big reason many people don’t invest as much as they can. So, confident investors may get caught up in the excitement and buy a cryptocurrency while the market increases because they think it will be worth more soon. Investors who need to research before purchasing high-risk assets at inflated prices are likelier to lose money on Bitcoin and other cryptocurrencies. One of the main reasons to look at the volatility of cryptocurrencies before investing is to take part in organized trading and careful thought to reduce the risk of losing money.
It is important to remember that doing a lot of research can increase your chances of doing well in the cryptocurrency market. By looking at how volatile the cryptocurrency they want to buy is, traders could reduce their risk of losing money.
How to beat volatility?
Can a risk-averse investor reduce the volatility of cryptocurrencies and get the most out of their investments? Even though cryptocurrency markets are known for being unstable, there are some tried-and-true techniques and factors that newcomers to the field should consider when making an investment plan. These steps could lessen the effects of the volatility of cryptocurrencies.
HODL
Given that cryptocurrencies’ prices change daily, new traders may be tempted to sell in a panic when prices are low. But it may be best to keep an investment the same for a long time, like months or years. HODling is a term used in cryptocurrency to describe keeping a currency for 5–10 years. This strategy has gained much attention as an excellent way to invest. This method is perfect for new investors who want to invest without doing much. In 2009, Bitcoin was worth nothing, but by July 2010, it was worth nine cents. In November 2021, Bitcoin reached its highest value of $68,990.90. This investment could bring back a lot of money over a long period.
Cryptocurrency savings
Crypto-earning platforms give investors a safe way to save and simultaneously make money on their investments. This way of investing lets people earn passive income by lending their assets to people who need cash. It works like a bank savings account.
The process of automatic payments
By automating crypto currency purchases, you can use dollar-cost or pound-cost averaging, a joint stock market strategy. The plan is to include a fixed amount of £100 worth of bitcoin in the monthly investment portfolio, no matter what the market is doing. Systematic, small-scale investments even out market swings, so you don’t have to worry about short-term volatility or keep an eye on cryptocurrency charts all the time. This method is suitable for people just starting to learn about the subject.
Lump-sum investing
A different way to use the “buy-and-hold” strategy is to put a lot of money into a single asset and do nothing else with your money. Dollar/pound-cost averaging is an excellent investment method for people who can’t handle too much risk. But investing a large sum all at once means you might buy at a high price, which could be uncomfortable if the price drops later.
Diversification of one’s investment portfolio
Diversifying their portfolios of investments well, intelligent investors often choose to keep a wide range of assets for a long time. This is the best way to do it because putting much money into a single cryptocurrency can be risky. Having a wide range of assets in your portfolio, such as digital currencies, stocks, and other investment vehicles, is essential. By spreading out aids, one can lessen the risk of being overexposed. When investing in cryptocurrencies, buying the biggest ones by market capitalization, like Bitcoin, Ether, or Litecoin, is best to reduce the risk of being too exposed to market volatility.
Acquire stablecoins
One way to lessen the effects of cryptocurrency volatility and market downturns is to turn some cryptocurrency holdings into assets with stable values. Stablecoins are digital currencies tied to a fiat currency like the US dollar or gold. The cryptocurrency in question acts as a universal standard and tries to make other cryptocurrencies more stable. Its lower volatility is because a specific reserve asset backs it. Given the diversification we’ve discussed, keeping a strict approach to the percentages in your investment portfolio is essential.
Avoid fear of missing out (FOMO)
The value of Bitcoin depends on what people think the price will be. In cryptocurrency, new investors often work too hard to keep up with current events and patterns, giving in to the fear of missing out (FOMO) and letting their emotions get the best. This can cause them to buy at peak prices or make trades that aren’t good for them.
Even though fear, uncertainty and doubt (FUD) works in the opposite direction, it could hurt the trading of cryptocurrencies. Negative rumors, posts on social media from influential people and celebrities who support cryptocurrency, and other relevant information about a market or asset may cause traders to sell their holdings, which can cause a sudden drop in value.
Fear, uncertainty and doubt (FUD), and fear of missing out (FOMO) are on the rise, directly affecting the cryptocurrency market volatility—investors who are just starting out need to understand why this is happening. Learn as much as possible about the financial markets, know the risks, and use long-term investment strategies.
Prepare yourself
Even if you have the most up-to-date information, the value of cryptocurrency could still go down because of things like a popular tweet, political unrest, or a global disaster. You can’t say enough about how important it is to have a plan and keep losses to a minimum in case of a sudden crash.
