Volatility Harvesting: A Better Way to Harvest Crypto Domino
- The crypto market has been subject to high volatility from the beginning.
- Volatility harvesting is best suited for various crypto portfolio managers according to the analysts.
Bitcoin was invented in 2009 after the housing market crash. The housing crashes made various economies unstable amid the instability Bitcoin was founded on. Since then, various cryptocurrencies have emerged that have changed the face of the financial market. It has pushed the crypto market with a capitalization of more than $1 trillion. Cryptomarket is currently in its growing phase and can observe tremendous growth in the near future. It has also been exposed to a lot of volatility. If we take the example of Terra and FTX, a large part of the money was gone in a few days after the domino fall began. Bitcoin has seen an annual volatility of 70% and various altcoins have seen an increase of 150%. DCA, index funds and various methods are currently present in the market and are used by various people
Various investors and traders came up with prominent solutions that have proven to be useful, and volatility harvesting is one of them. It is not investment advice. It is just to make readers aware of the new investment methods.
DCA & Martiangle: All for one and one for all
Dollar Cost Averaging (DCA) is a popular investment strategy used by many. It involves investing a fixed amount at regular intervals, regardless of market conditions. This approach is based on the belief that over the long term the overall market tends to rise, and by investing periodically, investors can take advantage of the highs
It can be a popular way to manage the risk and volatility of an investment portfolio. Using DCA, investors avoid the temptation to time the market and have a disciplined approach. This strategy sometimes becomes detrimental as investors may miss out on large potential gains. This can increase wealth over a long period of time.
Martingale Method: Martingale investing is a high-risk investment strategy that involves doubling down on losing trades in the hope of recouping losses. This approach is based on the idea that over the long term the odds of a winning trade will increase and investors can make up for losses by continuing to increase their bet size. While this approach can lead to significant gains in the short term, it can also result in catastrophic losses if the market moves against the investor. This can be very harmful in crypto as well as in various coins that drop down to zero in a matter of weeks or months.
This investment strategy is less recommended for investors
Is volatility harvesting a better way to invest?
Volatility harvesting is an investment strategy that involves rebalancing a portfolio based on the volatility of a particular asset. The concept was first developed by mathematician Claude Shannon and is an extension of the popular investment strategy, dollar cost averaging.
The idea behind volatility harvesting is simple – buy an asset and rebalance the portfolio every time the asset price moves away from the target. By doing this, investors can take advantage of market volatility and potentially increase returns.
For example, let’s say an investor buys $100 worth of ETH, and the price of ETH fluctuates between $101 and $99 over the following days. If the investor only holds onto Ethereum, they will not see any return on their investment. However, if they rebalance their portfolio by selling one dollar of ETH when the price goes up to $101 and buying one dollar of ETH when the price drops to $99, they can potentially increase their returns. The benefits of volatility harvesting become even more apparent when market volatility increases. By rebalancing their portfolio, investors can take advantage of market fluctuations and potentially increase returns. To implement the volatility harvesting strategy, investors can follow a simple set of rules. For example, an investor may choose to invest 50% of their portfolio in Bitcoin and keep the other 50% in cash. When the portfolio weights deviate from the 50/50 allocation by a certain threshold, the investor can rebalance the portfolio by buying or selling Ethereum.
While volatility harvesting can be an effective investment strategy, it is important to note that it is not without risk. Market volatility can be unpredictable and investors must be prepared to absorb potential losses.
Conclusion
The crypto market has been subject to volatility since its inception. An annual volatility of 50% is seen in various cryptocurrencies. Meanwhile, shares have very less volatility expect a few cases. Investors have used various methods to harvest the volatility of crypto and volatility harvesting is one of them. One should do their own research before investing in a particular asset or using any methods.
Disclaimer
The views and opinions expressed by the author, or any person mentioned in this article, are for informational purposes only and do not constitute financial, investment or other advice. Investing in or trading crypto assets comes with a risk of financial loss.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional money exchange systems. She is also fascinated by blockchain technology and its function.
