Cryptocurrency and Volatility: The Downside Dilemma

Table of Contents

• The Problem Of Volatility
• Avoiding the Downside
• Using Protection

Cryptocurrencies are volatile — there’s no getting around it. Ironically, this property is both part of the reason why they’re so successful, and also a major roadblock to their mainstream adoption. After all, nobody likes to be on the wrong end of volatility.

But what is becoming increasingly apparent, is that while cryptocurrencies experience sometimes significant decline, the overall market consistently bounces back stronger than ever. That said, few people actually benefit from this growth — due to either selling too early or getting stopped out of their positions.

At Bumper Finance, the radically innovative DeFi price protection protocol, they’re looking to put an end to this issue. But before we get into what their product can do for you, let’s take a look at the problem at hand.

The Problem Of Volatility

When it comes to volatility, cryptocurrencies are simply in a different league when compared to other financial instruments — like most stocks, commodities, and fiat currencies. 

Indeed, while the average 30-day volatility of gold is a relatively vanilla 0.35%, Bitcoins (BTCs) 30-day volatility is an order of magnitude greater, and currently sits at 2.9%

Most other major cryptocurrencies are similarly volatile and have an average 30-day volatility of as much as 10%.

There’s a few main reasons why cryptocurrencies are so volatile.

For one, they’re less liquid than other mainstream markets. This can mean objectively small market orders can have a clear impact on the price, and potentially trigger a cascade of stop orders that produce a characteristic price swing. Their accessibility means they’re also commonly traded by inexperienced investors, who may be more prone to erratic actions when the market takes a sharp turn.

Now, this volatility is excellent for short-term traders looking to profit from the rapid changes in a cryptocurrency’s value. But it’s a lot less fun for long-term holders, who can be spooked into liquidating their position when the volatility starts eroding their balance, and the market starts looking suspiciously bearish.

Although cryptocurrencies are designed for various purposes, they’re still largely used for speculation, and many holders count on their investments turning a profit. Now, few will complain when the market moves in their favor… But what about the times when it doesn’t? Given that the large majority of cryptocurrency holders are not accustomed to such volatility, it’s commonplace to see investors lose money — often due to simply selling too early.

There must be a better way.

Avoiding the Downside

In the last decade, cryptocurrencies have proven to be one of the most lucrative asset classes, with many cryptocurrencies experiencing upwards of 10,000% returns since their inception.

But the path up has been fraught with both minor dips and extended periods of decline, during which many holders either completely exited their positions or scaled back. However, much to the dismay of those that sold, these cryptocurrencies often recovered to reach ever-greater heights.

This situation is a perpetual dilemma for many cryptocurrency investors, who believe in the long-term potential of their assets, but find it difficult to tolerate the dramatic price swings that can come along the way.

There are a number of tools and products that can be used to protect against losses, i.e. stop-loss orders, pegged assets and some cryptocurrency derivatives, but these only solve half the issue. While they can (in some cases) prevent losses, they also eliminate any potential for benefiting from the upside — they are simply not good enough.

To put the problem into perspective, four of the top five cryptocurrencies by market capitalization (Bitcoin, Ethereum, Binance Coin, and Cardano) have reached their all-time highest values in the last month. But prior to this, they all suffered staggering losses between 2017 and 2020 — causing many holders to liquidate.

Therefore, to get to today’s level, anybody who had invested during this time would have had to hold through more than a few massive crashes, or swing trade their way to success — not the easiest of tasks.

Nonetheless, there remains a gap for an intuitive solution that helps investors minimize their potential losses, while maximizing their potential gains.

Using Protection

If you’re anything like us, then you’ve spent more than a few sleepless nights worrying about what horrors might be happening to your portfolio while you catch some shut-eye.

Until recently, you only had a few options to give you some semblance of downside protection — practically all of which have serious limitations, not the least of which include sacrificing any potential rebounds or eventual upside.

What if there was a way to protect your assets while still retaining all of the incredible upside potential of those assets? A solution that provides you the peace of mind that comes with knowing that you’ve locked in the minimum value of your assets, no matter what.

Well, now there is! Bumper Finance was created to fill this massive unmet need in the industry, by providing a simple tool that allows you to lock in a minimum value for your chosen cryptocurrency, ensuring your stack never falls below this value. It does this while ensuring you retain the full liquidity of your assets and enabling you to still benefit from any growth.

Bumper protects the value of your crypto using a radically innovative DeFi protocol. Set the price you want to protect and if the market crashes, your asset will never fall below that price. Importantly, if the market pumps, your asset rises too.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.