VOLATILITY AND LEVERAGE IN THE WORLD OF CRYPTOCURRENCIES

in LeoFinance11 months ago (edited)

Author: @madridbg, through Power Point 2010, using public domain images. Mediamodifier

Greetings and welcome dear readers of this diversified blog, this publication is descriptive and analytical type, where we will seek to address two fundamental variables in the world of trading, as represented by the degree of volatility and leverage when entering the cryptocurrency market.

As has been constant throughout my publications, this type of economic content, I usually share it through the community of @Leofinance who are trending in topics of economic interest.

In this sense, talking about the cryptocurrency market implies having a holistic view of the behavior of these assets, because as the days go by, the dynamics of the global economy bets on a decentralized world that leaves aside the traditional economy, under the banking regulation systems.

Under the few limitations that are currently present in the cryptographic world, the growth of these has been sustained in this period of pandemic, which has generated a growing feeling worldwide on issues of regulation of the blockchain world. In the first instance the problems behind the expected regulatory framework are associated with volatility, overleveraging and manipulation of these assets, which has an impact on users' capital holdings.

From my perspective, volatility in these markets is here to stay and I believe it is the variable that most interests investors, who enter the market with the willingness to quickly grow their capital. However, it is to be expected that this variable also has repercussions in the opposite direction, where the corrections that we have observed generate a feeling of loss on our initial capital and more for those investors who are not used to protect their investments through orders and stop loss.

Fig. 2. Proper risk management is crucial in digital markets Author: Megan Rexazin

So if we analyze the different scenarios, we realize that despite the healthy corrections, the growth of assets exceeds 27.26% which represents a sustained increase compared to the traditional market and the stock or futures market, hence the world behind the bitcoin is so demanded in recent years.

If we approach leverage, we realize that it is a double-edged sword, hence this type of investment demands a steel mentality with clear temporal focus and determined to meet short-term goals.

That is why a leverage equal or greater than 100x, implies a growing liquidation if the asset moves at least 1%, which in the world of BTC and cryptocurrencies this type of movements occur in a few seconds, after having generated an order.

Thus, both volatility and leverage are closely related and dependent variables, which if not approached with caution imply substantial economic losses.


BIBLIOGRAPHY CONSULTED

[1] Gracia et al. Factors influencing Bitcoin behavior and volatility. Article: Online Access

[2] Michael McLeay, Amar Radia y Ryland Thomas. Money in the modern economy: an introduction. Journal of Institutional Economics, vol. 17. Number 33. Article: Online Access


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