Tips to sustain in such a volatile market

Many of us refer to the crypto market as a risky and volatile market. The size of the cryptocurrency industry, measured by the market value of all currencies, crossed the $ 1 trillion mark for the first time in January 2021 and peaked at nearly $ 3 trillion in November 2021. It is currently $ 1.27 trillion as of May 20, 2022. This industry is experiencing significant volatility. Staying in such a market requires a different set of skills.

As the industry is in a very incipient development phase, higher volatility is a common phenomenon in this growth phase. However, the number of cryptographic users is almost 300 million, and per capita, cryptocurrency is currently less than $ 5. Despite being in a very incipient phase, this market has a much higher trading speed, as measured by the trading volume divided by the market capitalization, compared to the stock market: more than seven in cryptography compared to less than two in capital . The reason is the significant volume of trading through automated trading. A large part of the asset is managed electronically (through bots with user-defined trading range, target loss and profit criteria, etc.)

Value of global stock trading globally from the 1st quarter of 2017 to the 3rd quarter of 2021(in billions of dollars)While volatility is very good for a class of market participants, as it provides them with opportunities to make money, for many, it can generate opportunities to improve their portfolio skills.

As we all know, the basics of investing are to understand the underlying and the instrument. Equally important is understanding risk-taking and appetite; as a general rule, we should go with the minimum of two.

Volatility is a time-sensitive phenomenon, so improving the retention period reduces effective volatility and risk. You may have heard on several occasions that; the BUY and HOLD strategy is suitable for investors. Here they generally refer to investment as a long-term holding of underlying assets.

For cryptocurrency, one must search for and find the source of value of a cryptocurrency or cryptocurrency asset. A coin or token gets value from its efficiency and the use of the blockchain. Understanding the value chain and sustainability of the claim makes it a sustainable asset. Most of the time, one tends to ignore or downplay the role of blockchain technology. Given the fact that blockchain technology will alter the face and pace of all industries, it will make an individual a better decision maker, both in the space of cryptography and conventional assets.

Given the complexity of managing volatile assets, several asset management companies offer their services to manage cryptocurrencies, both actively and passively managed portfolios. However, the passive portfolio seems to have an advantage over active management in the case of cryptography. For example, if one had managed their portfolio around the IC15 (Cryptocurrency Index), the result would have been better, given the risk-reward ratio.

Generally, an investor becomes short-sighted and gets caught up in the noise of the market or the street. Investments in cryptography are no different. Being goal-oriented enables an investor to deviate less and stay firm in their decisions. It also helps to diversify the investment within the asset class. However, the choice of a currency or token is strict due to the number of options available. Fortunately, this industry has a wealth of information available and being a little cautious is enough to choose a solid grounded exposure. However, falling prey to malicious projects is as common as other asset classes, whether capital, real estate or elsewhere.

Diversification within the asset class, as well as through the asset class, generally reduces such risks along with other systemic and idiosyncratic risks. An article in a reputable magazine tries to find an answer through five experts on the amount of the global portfolio to be invested in risky assets such as crypto; experts say in the range of up to 5%. Following Grandma’s advice, one should not invest in a risky asset that one can afford to lose. However, modern investment studies suggest keeping leverage under control at all times.

The cryptocurrency industry offers good returns to long-term investors or cryptocurrency holders in terms of loans and income in which their assets work for them, rather than accumulating dust in their wallets.

Since the cryptocurrency market almost shares products similar to the stock markets, portfolio concepts such as ETFs and Hedge Funds, etc., are available to investors in global markets.


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The opinions expressed above are those of the author.


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