The Mitigation Strategies For Cryptocurrency Market Volatility

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INTRODUCTION

Volatility in cryptocurrency market can simply be defined as the inability to predict the value or prices of assets or tokens owing to the fact that the prices of the cryptocurrencies are easily affected and controlled by a number or unpredictable factors as a result, causing extreme fluctuations of prices in the cryptocurrency market.

The same way everything in life has both disadvantage and advantage, one can say too that the volatile nature of the cryptocurrency market offers advantages and disadvantages, take for example, with proper skills it creates a source of income for traders and on the disadvantage part it leads to significant financial losses.

Therefore, it is important for users, investors and traders to learn to navigate the negative aspects or disadvantages of volatility that is why in this post of mine I am going to be explaining and discussing some of the strategies to manage and reduce the disadvantages of volatility in the blockchain network.

• INVESTMENT DIVERSIFICATION

Diversification of investments in a lame man's term can be represented as not putting all your eggs in one basket, this is one of the important and fundamental strategy in mitigating the negative effects or disadvantages of volatility in the cryptocurrency market.

By separating or spreading your investments across multiple cryptocurrencies and investment opportunities the investor can ensure that when one asset or cryptocurrency suffers loss as a result of volatility he still has other assets which are likely to bring profit enough to cover the losses.

Additionally, investment diversification can done differently based on the different investment opportunities in which the different cryptocurrencies have to offer, investors can split their assets spreading across Bitcoins, Stable coins or Altcoins this way no loss will be too significant or severe to bounce back.

• EMPLOYING EFFECTIVE RISK MANAGEMENT

A second strategy to mitigate the disadvantages or effects of volatility on the cryptocurrency market is to practically take a course first on how to manage the risks involved in participating in the cryptocurrency market and how to minimize them and maximize potential profit at the same time.

Learning effective risk management techniques is very important so as to prevent investors and users learning the hard way because when it comes to foolishly loosing your investments and cryptocurrency assets, your personal experience is not the best teacher, it is better to learn from the experience of others and how to avoid repeating the same mistakes.

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Some popular or well known risk management techniques includes employing or using stop loss and take profit orders, also, investors can periodically carryout portfolio balancing, portfolio balancing basically makes sure that the investor maintains his planned risk to reward ratio.

• REGULATORY COMPLIANCE

One of the factors that leads to volatility in the cryptocurrency market is manipulation from bigtime investors or sharks and whales in the cryptocurrency market however, the government and regulatory bodies can lay down guidelines that prevents investors from manipulating the market and causing significant financial losses to other cryptocurrency users.

Additionally, there are other ways in which complying with regulations helps prevent volatility in the cryptocurrency market take for example another factor which causes and leads to volatility is regulatory uncertainty which will be eliminated by constantly keeping to and obeying regulatory guidelines.

• STABLE COINS AND HEDGING

Stablecoins as the name implies, are cryptocurrencies that make an exception to the original nature of cryptocurrency which is being volatile, the stablecoin is a cryptocurrency that attains a stable nature by pegging its value to that of stable assets or currencies like the US dollar, Euro, or other stable commodities like gold.

Stablecoins as a strategy for mitigating the disadvantages of the volatile nature of cryptocurrency operates by basically serving the purpose or playing the role of a safe haven for cryptocurrencies and other assets during periods of increasing volatility in the cryptocurrency market.

Additionally, another strategy is hedging, this is a strategy that basically involves using derivatives such as futures and options so as to prevent the risk of cryptocurrencies or take advantage of it to make profits.

CONCLUSION

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In conclusion, this post which I have made is basically about some of the different strategies to prevent the disadvantage of volatility of cryptocurrency and I would like to say a very big thank to everyone who made the effort to read and go through this post.