‘Rules without rulers’: How to deal with crypto volatility
If you’re not a regular risk taker, investing in the wild, wild west of cryptocurrency can sometimes make you feel like a cowboy without a horse. Or a whip. Or your trusty leather cowboy boots.
But that’s exactly what Bitcoin podcaster Stephan Livera loves about it.
“It’s a system of rules without rulers,” he told the Yahoo Finance Summit.
But it wasn’t always like that. Initially, Livera didn’t buy into the Bitcoin hype, but eventually came around to it after realising its real potential.
“I see bitcoin as a new way that we can achieve things that were not previously possible with human institutions,” he said.
But what about volatility?
While some may enjoy the ride, not everyone is built for the ups and downs that come with owning cryptocurrency. One moment you’re on the crypto-rocket to the moon, and the next Elon Musk has sent out a damning tweet, sending you hurtling back down to earth.
If this has got you up in arms, digital asset fund manager at Digital X, Matt Harry, has one thing to say to you: “volatility is the price you pay to access outsized gains”.
But more than that, when powerful people talk, the world listens. And that’s just something investors need to be prepared for, Harry said.
“Never underestimate the power of a tweet, particularly from powerful people. Social media has given us the ability to get messages directly into the pockets of hundreds of millions, if not billions, of people almost instantaneously…[this can] have real effects on markets.”
And to be clear, it wasn’t just a few tweets from the Tesla CEO that led to Bitcoin’s recent fall. It’s been a series of unfortunate (for bitcoin) events, like China cracking down on Bitcoin miners and regulators scrutinising the industry.
But this is changing, Harry said.
“If you look at the amount of institutional participation that's now involved in this market, you have five out of the top eight global asset managers that have actively positioned into the space,” he said.
Investment banks like Goldman Sachs and Morgan Stanley have also begun offering crypto access to their wealthier clients.
“Yes, it’s volatile, but I think volatility is intrinsic in nascent markets, and volatility is reducing over time.”
So volatility is part and parcel of investing in crypto. What can I do about it?
Livera is no stranger to a dip - he’s even been through multiple 80 per cent drawdowns - but he agrees with Harry’s sentiment: the returns are like no other.
“We are talking about returns that are four of five times [the S&P],” he said.
“If you want this kind of return, well you're going to have to be able to stomach that volatility and it takes time, it takes learning...and basically taking a long term view.”
For bitcoin rookies, Harry recommends going to sources like CoinDesk, Brave New Coin and TheBlockCrypto.com, which he calls “an absolute treasure trove of accurate and reliable information”.
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