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Bitcoin Price Volatility and Risk Management: A Vote of Confidence in The Cryptocurrency

13 September, 2021 Technology

Bitcoin Price Volatility and Risk Management: A Vote of Confidence in The Cryptocurrency


The day that bitcoin's volatility begins to decrease is the day that widespread adoption will begin. Is it possible that widespread use will reduce the volatility of bitcoin? This is one of the most heated arguments in our industry, as market players attempt to predict when the erratic price action of bitcoin will become more stable. Those who are acquainted with my views on the issue are aware of my position: Although widespread use of bitcoin should ultimately result in a smoother volatility curve and price fluctuations, this adoption may actually increase volatility in the short term as the growing ecosystem adjusts to the influx of new market players.


As the Bitcoin ecosphere continues to evolve, younger entrants tend to grow with attributes that vary from each other and. This can cause havoc or even anxiety in an environment that has been accustomed to a different scenario for a long period of time; this has been the case with the Crypto industry but before we further went with out article, register yourself on the Bitcoin Code and learn all there is about the Bitcoin trading, so view on the link now.


The Trail of Volatility

A huge sell-off followed, shaking the globe in 2018 and forcing many individuals to "get out of the market." Volatility was back in full force after that. The question is, what transpired previous to the sell-off that precipitated this event? However, few methods have considered a significant event that occurred earlier in the year, in December 2017: the launch of the first bitcoin futures product, which went live on the Chicago Mercantile Exchange and began trading in January 2018.


As a result, the Bitcoin ecosystem saw its initial expansion, designed to challenge the previously existing reality of a buyers-only market. The increasing popularity of bitcoin as an asset class on its path to widespread acceptance prompted the establishment of the futures market and the emergence of a new kind of market player, the short seller, which resulted in a sell-off that we are all familiar with at the time.


Risk Management

The solution is straightforward: risk management. To the extent that we can help bitcoin expand and welcome new members while experiencing reduced volatility and smoother price fluctuations, risk management is the most important contribution to the cryptocurrency. The first guideline is to recognize the dangers you are dealing with when it comes to risk management. However, before we can comprehend them, we must first recognize their existence.


It's the things you believe to be true that are just not true." Mark Twain once said, what if the entire value of all bitcoin positions across the globe was not dependent on random outcomes, but rather on situations known before the positions being established? What if a miner's earnings were frozen for a year, or if 70 percent of the value of your portfolio was held in place? The market would then be dominated by confidence, and the subsequent sell-off would not have been as severe as the previous one.


In the case of bitcoin, risk management is a vote of confidence. Why? Because confidence is generated from known outcomes and known results result from risk management, we may say that Risk management is the solution to severe volatility swings and minor sell-offs in the stock market. Once it becomes clear that the drop will not hurt our portfolios or lives' savings, we can avoid liquidating our holdings and selling in a panic. The point at which everyone controls their own risk is when price normalization is accomplished and trust is restored in the wider market environment.


But how do we go about approaching risk management in the first place? For starters, risk management starts with the establishment of positions and the execution of trades. Alternatively, you may avoid getting into a position where you are overextended and have little influence over the outcome. It is necessary to manage risk to ensure that we do not participate in a transaction that, if it goes wrong, would jeopardize our financial well-being or our family's financial well-being. Risk management happens when you place a stop loss on your leveraged position rather than doubling down or hoping that prices will return to where they were before you entered the position.


Risk management happens when you rapidly recognize that you, rather than the market, have made a mistake and change your exposure due to this realization. Risk management may be accomplished more moderately via derivatives markets, such as purchasing a put option to create a maximum loss scenario or a minimum gain scenario. In other words, when you sell some futures contracts in exchange for a portion of your physical position to safeguard your portfolio from local volatility and potentially unfavorable market circumstances.


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