Crypto Investing/Volatility

“Deciding to invest in the fast-paced, ever-evolving digital assets market can seem daunting. In the past, people were often hesitant to invest in digital assets – namely cryptocurrency – because of their inherent volatility and associated risk. But the tides are changing, particularly as the global cryptocurrency market has grown into a flourishing, multi-sector ecosystem since bitcoin’s (BTC) 2009 debut.”

“…bitcoin has been called the best-performing asset of the decade, yet its price heavily depends on a number of factors, including supply and demand, investor sentiment and the media hype cycle. Even the most-prominent and well-capitalized cryptocurrency experiences fluctuations, resulting in positive returns and, at times, losses.

When an investment portfolio is constructed in a professional manner, volatility has the potential to be a portfolio enhancement rather than a disadvantage. That’s because advisers have the expertise to help by setting frequent rebalances and buying and selling orders at certain thresholds. We’ve seen this play out time and time again as the adoption curve for digital assets has ramped up over the years.”

While I don’t 100% agree with everything in this piece, it does a great job of debunking some of the most common misconceptions I see when talking to investors and those new to the crypto sector in general.

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“In periods of uncertainty, liquidity becomes especially valuable to investors. Assets that are more liquid are convertible into cash without losing much of their value.”

“During a market crisis, assets at the top of the pyramid tend to have the largest drops in value. In this way, the degree of loss generally gets smaller the lower down you go in the pyramid. Relatively safer assets may rise in value due to higher demand.”

A good primer on how volatility and risk can be affected by the liquidity of certain assets. While the article doesn’t cover this, high-cap cryptos are highly liquid and can be a good way to diversify one’s investment portfolio.

“Diversification is key. Adding alternatives to a portfolio can not only help avoid investment risks but also hedge against inflationary environments.”

This can’t be stressed enough when establishing your portfolio, whether it’s for stocks or cryptocurrency, but that doesn’t mean that diversification eliminates risk. Regular portfolio assessments that adapt to market changes based on your financial situation is crucial to ameliorate risk.