On April 14, 2021, Bitcoin, the pioneering and most esteemed cryptocurrency, soared to an unprecedented peak of $64,895. Yet, within a mere few months, by July 19, its value plummeted by a staggering 50 percent, settling at $30,829.
Fast forward to today, and Bitcoin once again ascends, now hovering above the $60,000 mark as investors continue to fuel its rise. This rollercoaster ride of price fluctuation epitomizes the allure for high-risk, high-reward investors drawn to the cryptocurrency market — all while simultaneously repelling traditional investors who prioritize stability.
For many aspiring and beginner cryptocurrency investors, the volatility that comes in this sector presents an opportunity, but it also poses challenges and risks that require careful consideration and management. Here are some things you need to know when it comes to crypto’s volatility:
1. Knowledge about Cryptocurrency Can Help Set Your Expectations
Cryptocurrency investment and trading are not for everybody. The ideal crypto investor is well-informed, patient, disciplined, and able to tolerate high levels of risk. Moreover, they are someone who will be willing to put in the effort to study the ins and outs of crypto.
Educating yourself about cryptocurrency fundamentals and market dynamics can help you set realistic expectations and avoid falling prey to hype or misinformation. Additionally, it’s crucial to grasp the underlying technology, market trends, and factors affecting prices. This knowledge will enable you to make well-informed decisions and confidently navigate through market volatility.
2. Crypto Coins Need Secure Crypto Wallets
In the world of cryptocurrency, there are many new concepts and elements that you need to be aware of. One of the most vital is the concept of a crypto wallet.
Much like a digital wallet or online bank account that holds your fiat money, crypto coins are also protected by crypto wallets. However, instead of digital money, the crypto wallet holds your public and private keys that identify your coins in the blockchain.
Crypto wallets come in various types, each with its own advantages and disadvantages. For maximum security, you have cold wallets like paper or hardware wallets that are deliberately kept offline. Meanwhile, hot wallets provide the most convenience, such as smartphone apps and cloud wallets. As an investor protecting your coins, you can consider keeping a few coins in a hot wallet for quick trades and transactions while safeguarding most of your digital currency in a cold wallet.
Some wallets are more secure than others, providing the best of both worlds, like an XMR wallet that’s specifically designed to hold Monero coins, one of the most privacy-centric cryptos in the market. When selecting a wallet for trading, security should be a top priority.
3. Starting Small Provides Experience and Builds Confidence
For beginners dipping their toes into the world of cryptocurrency investing, starting small is sage advice. Investing a small amount that you can afford to lose allows you to gain valuable experience and build confidence without the risk of financial ruin.
Starting small allows you to test the waters and learn from your mistakes. As you gain more insight and experience in crypto exchanges and other transactions, you can slowly raise your investment as you grow more familiar with the market’s ebbs and flows.
4. Emotion Leads to Irrational Investment Decisions
In the fast-paced world of cryptocurrency trading, emotions can run high. Fear, greed, and FOMO (fear of missing out) are powerful forces that can cloud judgment and lead to irrational investment decisions.
As with other investments like stocks and bonds, it’s essential to keep a cool head and stick to your investment strategy. Even when the market is in turmoil, you need the self-discipline to adhere to your plan. Furthermore, avoid succumbing to emotional impulses and remember that patience is the key to long-term success in cryptocurrency investing.
5. Diversification Can Help You Manage Risk
Diversification is crucial for managing risk in cryptocurrency investing. By spreading your investment across multiple cryptocurrencies with varying risk profiles, you can mitigate the impact of volatility on your portfolio.
Moreover, diversification allows you to hedge your bets and capitalize on opportunities in different sectors of the market. This reduces the overall risk of your investment strategy.
6. Crypto Liquidity Is Determined by Its Trading Volumes
Liquidity in cryptocurrency is determined by its trading volumes in the market. Higher trading volumes generally indicate greater liquidity, as there are more buyers and sellers actively trading the cryptocurrency. This means that it is easier for you to buy or sell your crypto coins without significantly impacting their price.
Conversely, lower trading volumes suggest lower liquidity, which can result in wider bid-ask spreads and increased price volatility. In other words, there may be fewer buyers and sellers, making it more challenging for you to execute trades without impacting the price.
Your trading strategy should be adapted based on the liquidity of the market in which you are trading. In high-liquidity markets, you have more flexibility to execute trades quickly and efficiently, allowing for strategies such as scalping or day trading. Meanwhile, in low liquidity markets, you may need to adopt a more patient approach, using limit orders and avoiding large market orders to minimize slippage.
Volatility in cryptocurrency presents both risks and rewards. The key is to understand and manage this volatility with the right information and discipline. In being aware of the essential information mentioned above, you can set realistic expectations and make smart decisions that will lead you toward achieving your financial goals.
