The crypto market is a novel space with a virtually non-existent entry barrier. You can start right off the bat without having a license or proper training.
All you need is to register on the crypto exchange or create a wallet, and there you go – you can buy the assets that you want.
But how well are you prepared for the shocks of volatility? Constant ups and downs, collapses? How stoic are you? What strategy are you using to avoid disaster?
Volatility is dangerous. But the danger attracts the most fearless. After all, without volatility, there would be no profit potential in the markets.
Investors and traders live on volatility. But you have the urge to be a Rambo – get out there without any helmet or bulletproof vest and shoot everything that stands, make sure you’re greater than your enemies.
But guess what – movies are movies, they reflect the desired outcome but not real life. Heck, how long can you last on the real frontline without safety equipment?
The crypto market is not a movie, it is real and can hurt you big time. While the risk increases your chances of great reward, it simultaneously spikes the possibility of financial ruin.
Someone who believes they are Rambo can attempt to put down all the enemies and be hailed a hero, but what are the real chances of that happening?
Because of the above and a number of other reasons, the crypto market remains a risky endeavor.
At Libertify, we look at the real world and understand that Rambos are rare. We believe in a bulletproof vest, which is a risk-adjustment mechanism in our case.
The dollar-cost-averaging (DCA) strategy is an interesting one. In a nutshell, DCA-ing aims to tackle volatility by investing a certain amount of money at clearly established intervals (daily, monthly, etc.).
The main goal of interval buying is to purchase at differing price levels to drive down your average buy price by accumulating as many assets as possible.
The mechanics are fairly straightforward:
Let’s take a look at DCA example below:
You invest $100 every month in cryptocurrency A:
At the end of the investment period, you will have 98 coins worth $980 in total, meaning you made a $180 profit. If you were just buying and holding, you would experience all the price swings and make nothing, as the price fluctuated from $10 many times, all the way back to $10.
You routinely execute the trades to get the returns eventually. But what if there’s a bloodbath in the market? Some crazy Rambos come to ride the volatility, fail, and… You are left with a few bucks.
If there is a bloodbath, people tend to avoid it for understandable reasons – safety is key. Being in a safe place lets you live a bit longer.
However, in crypto, the bloodbath smells of opportunity, which is quite deceiving. Take a look at this example:
The outcome? 1060 coins worth $106. You lost $194 ($300-$106). That’s over 50% loss! Now imagine if you were to invest the same way as the previous example. That would have been a complete disaster.
Does DCA take volatility into account? No.
The above example might seem extreme but there are others even more so, like the Terra Luna case. When Terra Luna started to collapse, the algorithm was producing more and more coins, eventually pushing the value down.
If you followed the DCA strategy, you would be definitely left with nothing simply because of no exit strategy.
Buying the dip is also a prevalent investment strategy. However, contrary to DCA, you don’t buy the coins regularly but only once they fall.
The idea behind this approach is simple – coins become undervalued, thus giving you the chance to take advantage of the steep price moves.
Buying the dip is highly advertised on Twitter and used by many investors to stash cryptos. But again, you could be entering a potential bloodbath.
This time you hope for things to end quickly and for the sky to turn nice and blue but do you have an assurance of that happening? No, and no one can guarantee there won’t be crashes like these:
Libertify provides you with a long-term strategy that lets you avoid bloodbaths. No Rambos, no slaughter, just level-headed calculation, and emotionless long-term thinking.
The principle of this strategy is plain simple – buy assets and keep them for the long term. That is, in a nutshell, a passive investment where you just get the assets you need and don’t touch them until they mature.
Buy and hold suits those who base their investment decisions on fundamentals, or those who don’t aim to actively manage the assets like many retail investors.
For example, investors stack Ethereum due to its core tech capabilities and its dominant market position as an ecosystem.
The Ethereum technology allows anyone to create decentralized apps and make the project on the go without needing any extra documentation.
Token formats starting with “ERC” are all done with Ethereum, thus raising an assumption of its great use in the present and future of blockchain technology. For this reason, investors buy ETH and don’t manage it as they assume that it will increase in price no matter the volatility.
The same goes for Bitcoin. BTC is the first cryptocurrency often referred to as digital gold, and investors purchase it the same way they buy real gold – for long-term value.
Do you have protection with Buy & Hold? No.
You have no protection measures, you have to watch your account all the time. Some don’t care, they have nerves of steel and they are fine with losing their money. They’re mostly telling themselves lies.
Are you fine with that with exposing yourself to the full risks of the market and the emotional stress that comes with it?
Bitcoin and other cryptos fluctuated dramatically over the past three years, making some diamond hands abruptly quit.
At Libertify, we believe in the long-term success of the crypto market. Yet, the best way to overperform the market is by protecting yourself. We do this with continuous risk adjustment in accordance with the market regime, extracting the maximum value from volatility over time.
For example, Conservative strategy, Libertify’s risk-averse profile, delivered a 35.1% return while the overall market went down.
The graph shows that the Buy and Hold strategy is effective only at certain market points.
In fact, with today’s BTC price being at $18.6k if you purchased BTC any time since the 4th Dec 2020, chances are you are at a loss.
The reason is simple – The Buy and Hold strategy does not consider the risk you are enduring. As a result, you are taking 100% risk and have no safety net that can protect your funds from the steep downfall.
Consequently, the overwhelming majority give up and leave the market with no returns or at a loss. At Libertify, we manage the risk to let you earn stable returns.
Risk-adjusted strategy is one of the least known ones. In a nutshell, it aims to apply risk management practices used in stock investing to crypto. Instead of taking a 100% risk, you can avoid it by having a safety net relative to your risk tolerance.
Perhaps you are not a Rambo, but the market is rising. Every blogger you listen to or every article you read is screaming to buy and hold.
If you opt for this strategy while being risk-averse, chances are you will drop your assets once the bear market comes and miss out on future opportunities. As we know, markets move in cycles, and if everything is rising now, there is no guarantee the move will continue tomorrow.
Thus, you are exposing yourself to a huge risk, and once the bear market comes, you will find yourself in an uneasy mental state that will pressure you to sell your assets.
At Libertify, we believe that every person must know their risk profile and systematically adjust their risk over time. That’s why we ask our users to complete an assessment quiz to assign an appropriate risk adjustment strategy.
You get one of four profiles corresponding to a different level or risk: Conservative, Moderately Conservative, Moderately Dynamic, Dynamic.
Based on that data, Libertify will:
If you apply the Conservative risk profile to ETH during an average period of 3 months, you would have overperformed Buy & Hold by 19.8% and would have cut the unwanted volatility from 89.1% to 63.0%.
Check out our full article on risk adjustment here.
@ 2023 Libertify SAS. All rights reserved.
@ 2023 Libertify SAS. All rights reserved.
Investing in digital assets is highly speculative and volatile, and cryptocurrency is only suitable for investors who are willing to bear the risk of loss and experience sharp drawdowns. Please note, all past performance or hypothetical/backtested performance as expressed on this site, is not indicative or a promise of future performance.
Investments in digital assets and cryptocurrency are Not FDIC Insured, Not SIPC Insured, Not Bank or Government Guaranteed, and May Lose Value. Before investing consider your investment objective, risk tolerance, Libertify’s fees and expenses and any trading related fees before investing. Although the goal of Libertify and the crypto seatbelt is to reduce volatility in your portfolio, there is no guarantee that your portfolio or account will not lose value, including risk of loss of your entire principal invested. Your account may experience significant drawdowns and there is no guarantee that Libertify will outperform a buy and hold strategy.
