How Investors Should Deal With Volatility?

Dealing with cryptocurrency volatility has become an integral part of the process of investing in these digital coins. Anyone seeking to invest in cryptos must learn to become comfortable with it.

In this specific market, volatility is often attributed to a relatively immature market. A celebrity tweet relevant to Bitcoin or any altcoin has the potential to send prices rocketing high.

So, how do you deal with this high degree of volatility that has almost become a characteristic of these investment instruments?

General Recommendations to Deal with Volatility

As a new investor, the daily swings may seem frightening to you at first. Using a buy-and-hold strategy can help you overcome this challenging aspect of investment. Investment experts recommend a simple strategy here – once you get invested in crypto, don’t check on it. Keep your emotions out of it so that you don't make any loss-making decisions.

This is basically the age-old set-it-and-forget-it strategy that most conventional long-term investors follow and recommend. If you can’t follow this recommendation and sudden price drops keep worrying you, you should consider the following tips.

i. Diversify

Diversification in the cryptocurrency ecosystem ideally means that you should put only a part of your overall investments into cryptos. Generally, it is difficult to diversify within the cryptocurrency environment. Most of the major digital coins are expected to follow similar trends.

Any news related to cryptocurrency tends to affect most digital currencies in similar ways. For example, when a major financial company announces dropping its plan to set up a cryptocurrency trading desk, many cryptos follow a similar dip trend.

So, the ideal diversification strategy here is to make crypto a subset of your investment portfolio. It is recommended to treat these digital coins like volatile stocks with long-term goals.

ii. Keep Emotionality Out of It

When it comes to crypto investment, creating the fear of missing out (FOMO) is a common strategy. Most new offerings claim their coin to be the next Bitcoin. There is a lot of hype around the crypto revolution in the investment ecosystem. This drives emotionality, but it is best to avoid it.

The trend of Bitcoin millionaires is considered to be nothing more than a deviation from the norm. No one from the first generation of investors had any clue that the original crypto had so much potential. Emotionally-led decision-making is discouraged in any form of investment.

iii. Learn When to Hold

HODL or a Hold On for Dear Life is a basic strategy followed by many crypto investors. It implies that you should hold onto a cryptocurrency until the market offers the ROI you desire. There is a lot of sense in this approach though.

In the crypto ecosystem, the high degree of volatility should not be seen as a feature or a problem. It is part and parcel of this environment. Whenever a digital coin’s value is going through a wide swing, maintaining your calm and holding on can help you save money. Whenever market corrections occur, the speed can be swift and the changes can be dramatic.

iv. Hedge Against the Risk

For more information visit the BitQT platform. While there are many instruments for dealing with crypto volatility, the basics come down to using options to hedge against or making profits from volatility itself.

It is equally important to explore the different options given that it is an immature market and such markets tend to misprice options more often. Covered calls can specifically be of help in covering the risks that come with holding an asset as an investment. It is recommended to secure effective options for your cryptos to work as an effective hedge. It is assumed that crypto is just a part of your larger investment portfolio. In that case, it is best to hedge the risk by choosing different coins. These should ideally be the ones without much correlation in terms of their movement.

The highly volatile and unpredictable nature of cryptocurrency requires that you should not invest a significant percentage of your portfolio into this risky asset. One of the most important things you can do when investing in Bitcoin, Ethereum, or any other altcoin is to have much more than just a plan. You must have a plan that you can actually stick with.