Opportunities and risks have a close relationship. In most cases, the relationship between these two factors is non-linear and appears to follow the Pareto Law, whereby 80 percent of results (good or bad) are attributed to just 20 percent of input.
If on average, the volatility of Bitcoin & Ethereum leads to either an 80% increase or decrease in my portfolio value; in that case, the only best solution will be to hedge against any potential “Black Swan” events on these two assets. The past few weeks have shown that there is an increased need for investors to implement portfolio hedging strategies that will reduce portfolio volatility without negatively impacting their profits. Managing portfolio risks is key to optimizing on current and future opportunities.
This week’s takeaways:
-The crypto volatility index was a lot calmer on a week over week basis.
-There was a limited run-up of risk asides on Monday, December 13th when the CVI reached a high point of 99.
-For the past few days, we have seen the CVI trending across the 90–92 range.
Market Movements
As we approach the last few days of 2021, the crypto markets have become a lot less volatile than they were at the start of the month. Bitcoin has not broken past the $50,000 range but by all technical estimates, we should be seeing this breakout sometime soon — the more important question will be where does this lead to and what will be the effects on Altcoins?
Looking through the BTC volume charts, we have observed a downward trend and it will be important to watch for any increased volume changes in the coming weeks as the holiday season comes to a close.
Volatility Index
There was a sudden drop in implied volatility (as measured on the CVI) on Wednesday, December 15th and since then volatility has been hovering around the 90 floor range. For the 1st time since December 4th, the implied volatility seems to be trending down below the 90 range, it will be interesting to watch and see how long this breakout will continue — it is possible that we are gradually reverting towards the 2021 historical mean.
It was a similar story for the ETHVI, which measures the 30-day implied volatility of Ethereum. Week over week volatility has been on a downward trend, reaching a low of 99 for a brief period on Sunday, December 19th.
Overall, it will be interesting to watch and see how the market reacts over the coming days given the rise in global Omnicron cases, inflation concerns and US crypto regulatory uncertainty. It does appear that the markets have been a lot more calmer, but this might just be temporary given the upcoming holiday season.
A few things that we noticed this week
-COTI’s ERC-20 token was recently listed on the Korean exchange Bithumb; start trading today using the COTI/KRW or COTI/BTC pairs
-UST surpasses DAI as the largest decentralized stablecoin by market cap. More info here.
-Crypto M&A deal activity for 2021 increased by 131%.
Until next time!
The CVI Team
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