Navigating Low Volatility in Crypto: Strategies and Investment Opportunities

A serene, low volatility crypto landscape, sleek futuristic city with sturdy structures symbolizing stability, warm golden light setting the mood for investment opportunities, DeFi and staking elements subtly glowing, advanced trading strategies holographically displayed, cautious optimism in the air.

Cryptocurrency markets are well-known for their volatility, where large price swings help investors create or lose fortunes. Yet, there are often periods of relative stability where the tight price action bores some while being an opportunity for others. Since the beginning of the year, Bitcoin’s price has soared by over 60%, climbing from around $18,000 to over $27,000 at publishing time. However, the cryptocurrency has been stuck in a narrow range for the past two months, fluctuating between $26,000 and $29,000. It has occasionally attempted to break out above $30,000 but also faced some dips to $25,500.

According to CCData, Bitcoin’s volatility has dropped to 48.2% this year from 62.8% last year and from 79% in 2021. The cryptocurrency’s average daily change so far this year has been steady, with gains of 1.68% and losses of 1.93%. Investors have a number of options at their disposal to generate more during periods of low volatility, including simply lending their tokens out via decentralized finance (DeFi) protocols or through centralized exchanges. Other alternatives include staking and advanced strategies using derivatives like options and futures.

Speaking to Cointelegraph, David Duong, head of institutional research at Coinbase, noted that the tight price action in the cryptocurrency space was partly driven by a sharp United States dollar retracement, with many traders sitting on the sidelines “waiting for a clear trend to emerge.” Duong added that “many digital assets are still trading within well-defined ranges,” stating: “If we look at the options space, we have seen implied volatility soften to some of the weakest levels in recent memory. For example, the 1M ATM 30D [one-month at-the-money 30-day] implied volatility for both Bitcoin and Ether are now near 41% as of May 30, almost 10 volume points lower than they were one month ago.” The Coinbase executive’s statement points to low market expectations of significant price swings for both Bitcoin and Ether.

Managing risk during sideways markets is crucial. Tools like stop orders may lose their effectiveness during these periods, while liquidity shortages “can risk leaving some actions unfulfilled.” As such, it’s important to have a firm grasp on resistance and support levels. Increasing cash allocations could also be viable. More sophisticated traders can nevertheless find opportunities in options even when prices are stagnant.

In summary, while low volatility periods in the cryptocurrency market might lead to boredom for some traders, it can open doors for new investment opportunities. With various strategies available, it is crucial for investors to understand their risk tolerance and manage their portfolios accordingly as market conditions change.

Source: Cointelegraph

Sponsored ad