Volatility, What Volatility? How Crypto Investors Can Thrive in an Uncertain World

The average investor doesn’t usually enjoy massive volatility. Most just want to ride a smooth uptrend in a genteel way, perhaps in a Jane Austen-era bicycle, remarking on the clement weather. It’s no wonder they balk at the dizzying highs and terrifying lows of crypto investing.

That’s fair. After a prolonged bear market, crypto-native investors resemble ravaged Vietnam war veterans from the 1970s. I’m talking about those who have, say, over 50% of their net worth in crypto.

But despite the hardship this cohort is set to grow for two reasons: Millenials and Generation Z are very crypto-focused and they are set to increase their wealth and inherit more from departing Boomers. Furthermore, as the crypto market and regulatory environment continue to mature, the phenomenon of crypto-focused capital will become more ubiquitous. And why not? Crypto is very accessible (unless you live under harsh regimes like those in North Korea, or, erm, America). Crypto doesn’t prevent people from accessing derivatives or one day decide to ban short-selling.

For crypto-native investors, terms like “governance black hole” and “yield farm auto compounder” make far more sense than “price to earnings ratio” or the details of corporate governance. Backward-looking data contained in company reports doesn’t compare to real-time, on-chain data available 24/7.

Crypto risks are easier to understand than corporate or commodity risks. There are two main ones: “rug risk” (the chance the project might be a scam or a developer decides to suddenly rage quit), or “smart contract risk” (the risk that a bug or hack could cause loss of funds).

Both are pretty catastrophic and very real but at least I understand them. Hell, I’ve lived them. It’s easier to manage these risks than those associated with the average Dow Jones company, tied as they are to the unfathomable whims of the world economy.

For example, a few months ago, I was looking at Lithium stocks because I had come to the earth-shattering conclusion that the world needs batteries and batteries depend on something called lithium. To be honest, I still don’t even know if lithium is a liquid, mineral, or some kind of rock. Either way, those stocks looked pretty good at the time and they’ve mostly nosedived since.

It’s best to unapologetically stick to what you know. Crypto-only investors are better at assessing the risk of a project rugging than the machinations of the precious metal market. Stocks are there to hedge my crypto exposure, mostly ETFs.

This new type of investing is for those internet-native autodidacts, who share information on YouTube, podcasts, and online learning communities. Ask some of the best crypto traders out there and they will tell you they learned mostly on Twitter. And the crypto market plays into that. Alpha is up for grabs if you know how to research well, and Twitter moves markets, as Elon Musk’s Dogecoin-based antics have shown.

Normal market investors balk at a 20% drop. They will not fare well in the crypto markets. And while regular 80% declines are painful, they can lead to a robust, take-it-on-the-chin attitude that will prove advantageous to those who can stand the volatility and reap the long-term benefits.

These traditional actors have a different perception of risk than crypto-natives. Conservative financial bodies look at the volatility of crypto and brand it as too risky — but risk is down to personal perception. What’s your standard deviation of choice, sir?

I just lived through a 77% drawdown in my biggest holding and came out smiling due to basic risk management. Good regulations therefore should include proper education on risk management and prudent personal finance.

Ultimately, it comes down to what you prioritize in life and go through the trouble to learn. It’s an important choice to make and choosing crypto, with its outsized gains and bright future, is a good choice.

And for those who want to pass on the crypto market, that’s fine, but you should still own some as a hedge. Just as I own ETFs to hedge my main area of interest, traditional investors should own some Bitcoin or a crypto index token for diversification — that’s just common sense.

And when people say they wouldn’t invest in crypto because of the volatility, I can only look at them with war-hardened eyes and shrug: “I don’t feel nothing no more, man.”

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