Diversification Within Crypto Space
Investor money will seek alternatives if long-term US Treasuries bonds lose their safety. This will lead to a rise in gold and Bitcoin — Arthur Hayes, former CEO of BitMEX, wrote on October 24.
You’ve likely heard others talk about growth, but Bitcoin is still a volatile asset, falling into the ‘high risk, high reward’ category. A 20% move with 5x leverage will either yield a 100% profit or liquidate a trade.
To minimize the impact of a single trade liquidation on the portfolio, it’s important to have a trading plan, follow risk management and diversify.
Diversification within crypto is challenging due to the market’s close correlation with Bitcoin — you’ve noticed yourself that altcoins follow Bitcoin. For instance, the correlation between Bitcoin and Ethereum rarely falls below 0.7, where 1 signifies absolute correlation and -1 its opposite.
To diversify effectively, you should choose different asset classes that aren’t correlated with each other: real estate, stocks or gold. For example, comparing gold and Bitcoin over three years reveals that the correlation coefficient is constantly changing from -0.75 to 0.75.
Even though we’re enthusiastic about crypto, gold operates in a different league. Currently, gold has a market capitalization of $13 trillion, while Bitcoin’s is only $720 billion. A 1% move in gold requires a much larger fund than in Bitcoin, making gold less volatile.
If you trade gold like you trade crypto, you won’t make as much profit, but you also won’t lose as much.
However, it’s difficult to buy gold in many countries: physical bars have high spreads, banks charge high fees and shares in gold mining companies may decline due to the company’s issues, even if gold prices are rising.
Tether, a company known for the USDT token, has introduced a solution: XAUt — digital gold. XAUt is a digital token backed by physical gold. You can even see the number of bars or kilograms they store on their website.
StormGain seized this opportunity and added trading pairs XAUtUSDT for gold and XAGtUSDT for silver. You can find them in the “Trading” section under “Commodities” to diversify your strategy.
Disclaimer:
Cryptocurrencies involve complexity and carry a high risk of rapid monetary loss due to volatility and changing regulatory landscape. It’s crucial to ensure you understand how cryptocurrencies operate and can withstand the potential high-risk scenario of losing your assets.
This campaign is not region-specific and should not be interpreted as an invitation to engage in cryptocurrencies operations.
