First off, most people think of volatility with a negative connotation. I don’t blame them because 2001 and 2008 were tough markets for the average investor. It made people lose faith in the system even or quit all together. But if you understand volatility on a deeper level you can turn from a mindset of fear to being unshakable.
What is your Risk?
Often times, somebody will think they are taking on less risk than they actually are in markets. They think that because their 401k is mostly in mutual funds that they are completely safe from volatility. The fact of the matter is that it is all based on probability. When you are in mutual funds your risk of an all out collapse over the next 20 years is smaller because money is spread. On the other hand, if you had all your money in a single stock the risk over 20 years could be huge.
So how do you take on risk if there is risk everywhere you look? The simplest way is to understand ‘notional value’ in products. Some products have more volatility than others which means they can go up or down in larger percentage moves. A simple idea but how do you actually gauge volatility.
In order to calculate volatility if you don’t have an indicator, is to look at the asset over the last 200 days and see the range it traded between. The larger the range, the more volatile the product in most cases. This is just to get a quick and dirty measurement.
Now volatility can work in your favor in amazing ways if used correctly. You have more potential upside in a faster period of time. I wouldn’t put all my assets into a position that could fall hard tomorrow. But it can change someones life to own a couple assets with this golden ability. It could allow them to be able to retire years earlier. I’m currently 22, and the idea of retiring at 35 with financial freedom is worth the work.
Hold Ethereum or Sell?
For every 10 people that read this, roughly 5 will never look at Ethereum again, 3 will research it but think its a bubble, and 2 will actually give a damn and take ownership.
Most will never know the next big thing until it already is big. Now i’m not here to give you why I think Ethereum will go up over time. I’m here to help you understand the volatility of Ethereum.
You could wake up in the morning tomorrow and Ethereum will be down $10. By the time you get coffee, it could be down another $10. The average psychological response to this sequence of events is to hurry up and look to maybe sell.
But what if the money you put into Ethereum you weren’t able to withdraw for 10 years. Then, 10 years down the line the price has gone to something like 10 times the price you bought it at.
Everyone in the world would says this easy in theory and hard to actually accomplish. People see price fluctuate and they let fear scare them away. Typically, they sell at the worst price because of emotion.
I promise you that if you can stomach the ups and downs you will make it with Ethereum. I can’t tell you that Ethereum will be worth $2000 in 5 years or something that critics will disagree on.
Here is what I can tell you from close to four years of being in markets everyday especially in 2015-2016. Don’t be a trader and become an investor. Investors have less risk because they have the asset of ‘time’. As long as Ethereum grows as a product, then in time it will be valued higher than it is today. I can hands down guarantee that.