Dealing with cryptocurrency volatility: methods and advice

The value of cryptocurrency is extremely volatile. There is simply no way around it. This has been the case since the industry’s inception and is part of the reason why traditional financial experts have been skeptical about the rise of digital assets like Bitcoin and Ethereum. The reality is that you are smart about how you manage your cryptocurrency, there are many ways to mitigate cryptocurrency volatility.

The Wild West of the markets

The reference to the “Wild West” comes from the time in American history when Western American states were lawless. This is very similar to how cryptocurrency markets work today. If we compare cryptocurrency markets to traditional financial markets, we see some pretty stark differences between the two. For starters, cryptocurrency markets operate 24/7 with no pauses, interruptions, stops, or emergency stop buttons. Cryptocurrencies are also global in nature, allowing anyone to join at any time. Basic trading does not require any license and, in many cases, no verification of your identity. The assets you’ll find on cryptocurrency exchanges range from cryptocurrency digital gold (Bitcoin), to a wide range of coins you’ve never heard of.

An intrinsic part of markets is volatility. Cryptocurrency markets have become notorious for huge losses over the past decade. While this is true, the losses are only half the story. The other side of the coin is the enormous earning potential. If you are a professional trader, then you thrive on volatility, because it is your opportunity to play in the market and make a profit. This article explores various methods you can use to deal with inevitable volatility in the cryptocurrency markets.

HODL only

The acronym HODL, which means “hold on for the dear life” is perhaps the most important trading strategy that a beginner investor can use to maximize profits. While it may not be the fastest path to wealth, it’s certainly reliable. This investopedia article correctly points out that the original post where HODL originated was a typo by a Bitcoin investor who didn’t know how to trade daily. Since then, the method, philosophy and strategy have been mentioned, shared and adopted by millions of individuals.

HODLing is certainly a way to deal with volatility. What the strategy breaks down at is “don’t worry, if you wait long enough, everything will work out.” It may be too early to say whether this is true or not, especially for cryptocurrency investors who entered the market in January 2018. The feeling that accompanies HODL is the timeless phrase “Keep calm and carry on”.

Manage your emotions

The two emotions you want to keep in check are greed or FOMO (fear of missing out) and fear or panic. Greed and FOMO occur when the market rises suddenly. This could be a day when the market is up %10+, and you think now is a good time to buy because you think this is the big bull run that has been promised. Most of the time, a downturn will occur after a green day in the market, which will make you think you have made the wrong decision. This is where panic and fear set in, causing you to sell at a lower price than when you entered the market. In fact, what happened to you, is what every trader went through at some point and moment in their career. You bought high and sold low.

The trick is to manage your emotions. Set goals, goals and rules, so you trade and invest with structure. When in doubt, fall back into the HODLing strategy, if you believe in the overall technology of cryptocurrency, then it’s only a matter of time before the market recovers to a point where you bought.


Stablecoins are how cryptocurrency markets deal with volatility. Stablecoins are cryptocurrencies that retain their value. They are typically pegged to a FIAT asset such as the USD or CNY. They act as a way to enter and exit a market position on a more volatile asset such as Bitcoin or Ethereum.

Since 2017, stablecoins have become extremely popular in holding and storing returns on trades, without exiting cryptocurrency entirely. For example, for every 10% the market goes up, you could sell x% of your holdings, so you can make sure you keep your profits regardless. If the market falls below your point of sale, you have the option to buy again at a lower price. If the market rises, be happy that you have successfully made a profit.

It’s important to understand, however, that you’ll never make huge profits with stablecoins.

Staking and lending

Staking is when you block your assets, in order to earn a return on investment on the amount you have “wagered” on the network. Many blockchain networks use staking as a method of reaching consensus on the network. As a reward for blocking your coins and participating in the consensus, the network will reward you, giving you more tokens wagered.

The advantage of doing this is that you’re ending up with multiple tokens wagered and typically get a daily, weekly, or monthly payment. So, in an effort to curb volatility, if you are increasing your stake in the asset and progressively holding more and more, in a negative scenario, the reward for staking will cover whatever losses you receive from market volatility. Also, if you’ve locked your tokens into a staking contract, you’re forced to adopt the HODL mindset, as you can’t get rid of our tokens unless you “stake” them, which typically requires you to wait a period of time before you can regain access to the transfer to your tokens.

Lending is very similar, except that it typically requires a centralized third party to facilitate while staking is done in a decentralized manner. The company uses the money you have lent them for whatever purpose they see fit. They will typically lend it to other uses in exchange for collateral, or take the loan since the rate they are paying you, is better than the rate they would otherwise get from a bank. This is venturing into DeFi (Decentralized Finance) territory, which is a big topic.

Separation thoughts on volatility

It was stated earlier in this article that the cryptocurrency markets are the wild west. That’s true. These markets are not for the faint of heart. If you can’t suffer a 40% loss, you won’t see 200% gains.

It is too early to say whether or not cryptocurrency markets will mature to the point where they will achieve the stability seen in traditional stock markets. Although, some things are undoubtedly here to stay. Hundreds of different coins and exchanges, free entry into the markets, global cross-border trade, and 24/7/365 trading are all here to stay.

Leave a Reply

Your email address will not be published. Required fields are marked *

pexels bram van oosterhout 6478886

Cryptocurrency liquidity: what it is and how it works

pexels liza summer 6347702

Cryptocurrency Staking: A Complete Guide