The word “volatility” is usually perceived as negative in financial circles in the same way that the name Lionel Messi is perceived in the Brazilian favelas, however, historically, volatility represents one of the biggest opportunities for profit, especially in the cryptocurrency markets.
The cryptocurrency market experiences much larger price fluctuations on average compared to traditional markets such as stocks, bonds, and treasury bills. In 2021, the benefits of volatility are in full force:
Market proxies like the S&P 500 Exchange Traded Fund Trust (SPY) are up 27% and Bitcoin (BTC) is up a whopping 140%!
Of course, the story is darker in 2022, but savvy bitcoin investors didn’t find bitcoin’s unceremonious drop from its high as a surprise; in fact, crypto winters have historically seen bitcoin’s value drop over 60% at least three times in the past before rising again to see new highs.
The nature of volatility is such that the highs are very high and the lows are very low. However, in many financial circles, only half of the offer gets the attention—the last part is highlighted, while the first is tucked under the covers and tucked away deep in a dusty closet.
The simple truth is that volatile conditions can provide some of the best risk/reward opportunities on the market, but investors need exceptional risk management skills and/or professional assistance to consistently take advantage of these opportunities.
“Volatility is the price you pay by investing in assets that give you the best chance of achieving long-term goals,” Gage Paul, a certified financial planner, told popular financial publication. “This is expected and can be seen as the cost of achieving these goals.”
Let’s take a look at how volatility helped Cointelegraph Markets Pro’s own data algorithms trade in 2022.
Over the past year, volatility has returned to the cryptocurrency markets, sending BTC down to $15,500, about 70% less than on January 1, 2022, when it was priced at $47,800.
Altcoins have swung even more sharply, a phenomenon that has helped Cointelegraph Markets Pro’s quantitative algorithm, VORTECS™ Score, perform outstandingly in real-time automated backtesting.
This chart from December 15 shows the results of the VORTECS™ Score since the beginning of 2022. At the time of publication, the return on investment (ROI) of the best strategy is over 176%.
In a valuation-based test scenario—for example, Buy80/Sell75—the algorithm buys a digital asset when the VORTECS™ score exceeds the first threshold of 80 and sells it when it falls below the second threshold of 75.
Without use bizarre balancing techniquesbut simply by dividing the portfolio between all assets that currently require investment, the algorithm brought 176% profit for its most effective testing strategy. — Buy85/Sell80.
By comparison, BTC has dropped about 70% since January 1, 2022, and an evenly weighted basket of the top 100 altcoins has fallen even lower.
The only reason the VORTECS™ Score can generate such high returns is because the cryptocurrency markets are volatile, offering many entry and exit opportunities in much shorter time frames than traditional financial market traders typically enjoy.
This may be partly due to the fact that cryptocurrencies are traded 24/7, but partly it is also due to the fact that crypto investors’ risk tolerance tends to be significantly higher than that of Wall Street CEOs.
So, while volatility has well-known downsides, including the risk of complete and permanent losses, it also holds great potential for traders with strong research skills.
And strong research tools.
See how Cointelegraph Markets Pro provides market movement data before it goes public.
Cointelegraph is a publisher of financial information, not an investment advisor. We do not provide personalized or customized investment advice. Cryptocurrencies are volatile investments and come with significant risk, including the risk of irreversible and complete losses. Past performance is not indicative of future results. Figures and diagrams are correct at the time of writing or otherwise indicated. Live tested strategies are not recommendations. Before making financial decisions, consult with your financial advisor.
All ROIs shown are valid as of December 27, 2022.
