The emergence of cryptocurrency as an increasingly prominent feature of the investment asset and financial landscape has been a key feature of the last few years, with a global economic impact that may only be starting to fully manifest itself.
A central part of that is the growing capacity to convert digital assets into fiat currency, something the XRPaynet card is destined specifically to do. If you have crypto, then you have spending power.
That means the impact cryptocurrency will have on various markets and even economies, particularly those benefitting from the seamless spending opportunities on offer for international travellers with a crypto card to spend on, is constrained only by the actual value of the crypto they have.
How Volatile Is Cryptocurrency?
With this, however, comes a caveat. Like any asset, cryptocurrency values can rise or fall. This is true of fiat currencies too (otherwise, the Forex market wouldn’t be a place for strategic trading), as well as stocks and shares.
However, what stands out is the extent to which change can occur. Economists will blanch at the long-term ramifications of a boom-and-bust cycle (so often reflected in overheated stock markets that then crash, as most notoriously happened in 1929).
The awkward truth about cryptocurrency is that it can be very highly volatile, much more so than other assets.
FX Empire recently argued that the crypto market as a whole has been “stagnating”, as investors turn their attention to rallying assets like metals and stocks.
By contrast, it noted, crypto is being left behind. It argued this is due to “deep-seated risk aversion” as investors avoid crypto due to the volatility of digital assets.
It pointed to Bitcoin as a case in point, with this most prominent of cryptocurrencies seeing its fortunes closely tied to those of the stock market until the last three months.
Since then, while the Standard & Poor’s 500 stock index has risen by seven per cent, Bitcoin has dropped by 15 per cent.
Is Boom-And-Bust Common In Crypto?
The article stated that the evidence indicates that Bitcoin is about to see a plunge in value by half, a four-yearly occurrence. That would be boom-and-bust by any definition.
There have been multiple examples of currencies going through boom-and-bust cycles:
· Bitcoin surged from $1,000 to $20,000 in 2017, followed by a bust when it lost 80 per cent of its value in 2018
· The Non-fungible token (NFT) market soared in 2021 to $18.5 billion in value, but plunged by more than 90 per cent in 2022
· The Terra-Luna collapse of May 2022, when a stablecoin designed to shadow the dollar lost $45 billion in just one week.
Apart from these examples, the market is generally volatile. Reasons given for this include the fact that it is a young market compared to more established assets, that investors make a lot of emotion-driven decisions, that technology has an impact, and that values fluctuate a lot in response to news headlines and regulatory changes.
The last of these factors may be tied to the youthfulness of crypto as governments seek to work out how to regulate it.
How Can Investors Respond To Crypto Volatility?
A key question is, how do you, as an investor, respond? There are several possible approaches you could take:
· Seek to make a lot of trades via the Volta Wallet, with over 90,000 pairs enabling you to seek to sell before a currency falls and pick up the ‘next big thing’
· Hedge your investments by mixing them between low-risk stablecoins and higher-risk gambles that might fail, but could also produce spectacular gains
· Take opportunities presented by the XRPaynet card to spend crypto that you anticipate will soon lose its value.
· Sell Bitcoins now in anticipation of the four-yearly halving cycle
· Hold on to your assets with the long-term in mind
The last of these may be how some approach Bitcoin trading. It may have lost a lot of value in 2018, but it is now worth five times as much as in the 2017 boom. If it goes through another four-yearly halving cycle soon, an assumption based on past experience, it would follow from the same assumption that the next three years will see its value soar.
These all represent different options for investors, and, of course, you can change your approach and mix-and-match as you see fit. (Opinions will, of course, vary on what the best approach is.)
At the heart of cryptocurrency investment is the reality of volatility. This may settle down in time, perhaps; for example, when most of the world has clear regulations in place, or cycles like the Bitcoin four-yearly halving are received wisdom.
In the meantime, however, while volatility can make the market risky, it also creates a lot of opportunities, especially for smart, agile traders.