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 as per the analysts.

Bitcoin was invented in 2009 after the crash of the Housing market. The housing crashes made various economies unstable amidst that instability Bitcoin was founded. Since then various cryptocurrencies have emerged which has 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 immense growth in the near future. It has also been subject to a lot of volatility. If we take the example of Terra and FTX a large chunk of money was gone in a few days once the dominoes fall began. Bitcoin has seen annualized volatility of 70% and various altcoins has seen an increase of 150%. DCA, index funds, and various methods are currently present in the market and is used by various people

Various investors and Traders came up with prominent solutions which has proved to be useful and Volatility harvesting is one of them. It is not investing advice.It is just to make readers aware of the new investing methods.

DCA & Martiangle: The All For One And The One For All 

Dollar Cost Averaging (DCA) is a popular investment strategy used by many.It involves investing a fixed amount of money at regular intervals, regardless of market conditions. This approach is based on the belief that over the long term, the general market tends to rise, and by investing at regular intervals, investors can benefit from the highs

It can be a popular way to manage the risk and volatility in an investment portfolio. With the help of DCA, investors avoid the temptation to time the market and have a disciplined approach. This strategy becomes sometimes harmful 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 hopes 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 drop downs to zero in few weeks or months.

This investment strategy is less recommended to the 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 the 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 whenever the asset price moves away from its target. By doing this, investors can take advantage of market volatility and potentially increase their 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 simply holds onto their Ethereum, they will not see any return on their investment. However, if they rebalance their portfolio by selling one dollar’s worth of ETH when the price goes up to $101 and buying one dollar’s worth 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 swings and potentially increase their returns. To implement the volatility harvesting strategy, investors can follow a simple set of rules. For example, an investor might choose to invest 50% of their portfolio in Bitcoin and keep the other 50% in cash. Whenever the portfolio weights differ 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 risks. Market volatility can be unpredictable, and investors must be prepared to absorb potential losses. 

Conclusion 

Crypto market has been the subject of volatility since its beginning. An Annualized volatility of 50% is seen in various cryptocurrencies. Meanwhile, stocks 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 any particular asset or using any methods.

Disclaimer

The views and opinions stated by the author, or any people named in this article, are for informational purposes only, and they do not establish 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 monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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