How to Adapt Your Investment Strategy in The Face of Cryptocurrency Volatility

In his recent speech, the President of the US, Donald Trump, said that no one should ever sell their Bitcoin. This sentiment was met with roaring approval from the crypto community on various social media platforms. With Bitcoin finally crossing the coveted $100K level in December by reaching its new ATH (at the time) of $101,680, the optimistic mood in the world of blockchain was quite hard to ignore.

The uncomfortable truth for many is that the biggest digital asset in the world has also lost almost 20% of its price since January. Cryptocurrency volatility is something that even the giants cannot escape.

One of the issues with digital assets is that most of them are speculative instruments that can be affected by all sorts of factors. A single tweet from a popular billionaire can cause a memecoin featuring a dog to skyrocket. In many cases, ignoring the impact of social media on the volatility of cryptocurrencies is impossible.

Recently, Rivo has started incorporating this hugely important factor in its analytics. The Maneki AI assistant skims through social media to create summaries with insights into the crypto market. It identifies and describes public sentiment to allow for better decision-making on the part of an investor. Using such tools is hugely important for DeFi users due to the volatile nature of many digital assets.

Stable assets in crypto

Arguably, the most consistent and reliable digital assets are stablecoins pegged to a reference asset (usually the US dollar). A massive chunk of the DeFi ecosystem relies on various forms of stablecoins, such as USDT, USDC, and DAO, to function and attract users. However, even these tokens can stray from their reference asset by 1% — 2% within a single day.

Average 30-day Bitcoin volatility generally remains within 5%, with notable exclusions being the year 2011 when it was close to 8.26% and 2016 when it went down to 2.49%. Ethereum has a slightly higher level of volatility, with peak values exceeding 12%. Other tokens can be even more unpredictable, smudging the difference between short-term and long-term investments in the sector.

How to identify stable digital assets? Despite the difficulty of discerning reliable projects with tokens that do not have a high degree of volatility, it is still possible to find a way to create a diversified portfolio.

Here are some tips:

• Make sure to invest in tokens with a long market history. It is fine to try becoming an early adopter to reap the benefits of the first-mover advantage. However, a short market history won’t give you a good understanding of the asset’s volatility.
• Practice emotional discipline in investing. Making decisions under the influence of strong emotions like greed, fear, or hesitation can be detrimental to your portfolio. Spend some time doing your due diligence. Alternatively, check out the selection of vetted strategies at Rivo to browse through hand-picked investment options.
• Use a wide range of tools to search for the best assets. Technical analysis for crypto is a discipline that DeFi investors should focus on regardless of their preferences and risk styles. The Volatility Index, Bitcoin Dominance, and other tools help you identify coins that can perform well under various market conditions.
• Track other metrics. For a decentralized finance project, things like cash flow, collected revenues, total value locked, and others can be telling. For instance, some of the best protocols for long-term investments usually have high TVL numbers and consistent revenue numbers. AAVE has a TVL of over $16.8 billion and collects over $1.05 million in daily fees.

Creating a consistent strategy capable of delivering results you can be proud of is difficult when you are operating with highly volatile assets. On the other hand, with proper risk management techniques, you can count on higher premiums and extract excellent returns.

To sum everything up, you should work with time-tested protocols that have high TVL numbers and healthy metrics while tracking the performance of target assets using technical analysis instruments.

An appropriate investment strategy adaptation

We have to remind our readers that volatility should be considered an advantage in the crypto market because it is a natural consequence of price appreciation. It works in both directions. Any price jump causes the price to deviate from the median. Of course, the same is true for any bearish movement.

Investors who want to multiply their capital in a bullish market hope that volatility stays high to provide appreciation. However, blindly investing in any asset, tradfi or crypto, is not a good idea.

Here are some tips on how to improve your strategy in a broader sense:

• There is a distinct difference between Bitcoin, Ethereum, and other digital assets. With the exclusion of some stablecoins, the crypto market is comprised of tokens with chaotic price action that should not be considered good options for long-term capital allocation.
• Understand how global economic factors affect the cryptocurrency market. The creation of Bitcoin itself was a response to the 2008 financial crisis that shook the confidence of many individuals in the corrupt banking system. The current situation in the international economy looks bleak, forcing many investors to look fondly at the crypto market.
• Always do your due diligence. We strongly encourage all our readers to focus on researching platforms before investing in them. The Rivo platform is a great place for beginners and veterans precisely because it does all the heavy lifting for you by conducting thorough research into chosen investment strategies.
• Be mindful of potential security issues. Layer 2 and layer 3 solutions are born out of necessity and often sacrifice safety to boost throughput and performance. It means that healthy metrics and high TVLs do not represent the quality of investment or indicate potential stabilization of prices.
• Prioritize portfolio diversification. The size of your crypto portfolio should be limited to what is appropriate for your capital to be invested in things like stocks, fixed-income assets, and trading. This portion of your portfolio must be further diversified. Stake layer 1 tokens, invest in promising pools, and buy appreciating coins for long-term holding.
• Participate in the community. Speculative assets are volatile because people are constantly changing their minds about them. It means that keeping your hand on the pulse of the market is hugely important. The role of communities in making investment decisions has been illustrated many times by memecoins and DAOs.

Creating a strategy that can perform well in the world of crypto can be quite challenging, even for people with experience. Several tips above are general guidelines for newcomers, but some veterans often forget them too. Make sure to repeat them each time you plan to make an investment decision!

Ethical aspects of investing in cryptocurrencies

Many enthusiasts believe that decentralization is our way out of the dead end created by centralized financial institutions. The world is trapped in the endless cycle of bank failures and government bailouts. At the same time, up to 1.4 billion people across the world do not have access to any financial services. In some sense, investing in the DeFi ecosystem feels justified.

The problem is that we are still very early. The decentralized finance ecosystem is incredibly diverse, with over 11,000 tracked protocols offering their digital assets, services, and novel investment instruments. From automated investment tools to relatively simple lending protocols, the selection of accessible options is quite overwhelming.

A good solution is using the Rivo platform, an excellent destination for DeFi investors looking for a strategy that exactly fits their preferences and risk style. Check out the Yield Marketplace and discover a wide range of options picked by experts!