Cryptocurrencies: Volatility and Risk

Cryptocurrencies Volatility and Risk

It must be admitted that, just a few years ago, cryptocurrencies were an unknown concept for the vast majority. However, the events that we have experienced in the last two years have favored that its popularity has increased exponentially. This, as a result of the first confinements and the discovery of the facilities that current technology offers to operate in a simple way with them.

However, we should keep in mind that the cryptocurrency market is extremely speculative. If we decide to get into it, it is essential to be very clear about the project we are going to embark on before investing in them, because we cannot ignore that the simple fact that something is popular, no matter how lucrative it may seem, does not imply that it is necessarily profitable.

Once we have these concepts clear, we are already in a situation in which we could ask ourselves the question of how to proceed to obtain profitability with the innumerable types of cryptocurrencies that currently coexist in the market. In fact, today, we have more than ten thousand virtual currencies in a growth that does not stop, since, every so often, new cryptocurrencies arise that are created through a procedure called ICO.

A hectic start to the year

cryptocurrencies 2022

Although it is true that Bitcoin has made an extraordinary bull run —in which the rest of the cryptocurrencies have accompanied it— marking all-time highs, the current situation shows that in recent times the falls have been installed in the crypto markets. In these, there is a marked feeling of risk aversion that seems to have been installed based on the possible increase in rates by the Federal Reserve that would occur earlier than expected and the problems that occur in Kazakhstan, where the protests against the government —promoted due to the increase in the price of fuel—, after the telephone and internet blackout, are harshly repressed by President Kassym-Jomart Tokayev.

And it is that after the prohibitions of China to carry out any type of action with cryptocurrencies, a large amount of mining had been transferred to Kazakhstan -where approximately 18% of the Bitcoin hash rate is located-, the aforementioned conflict, in which there are cuts in the electricity supply and in the internet, are causing great chaos in the market.

And it is that since it reached its historical maximum last November, standing at more than 68,000 dollars, the cryptocurrency has not stopped its decline, dragging in its collapse the rest of the cryptos such as Ethereum, Cardano, Dogecoin or Shiba Inu.

Analysis of the evolution during 2021

However, it is fair to mention that, despite the current situation, Ether (ETH) has increased its value in the last year, in an excellent bull run that has managed to quadruple it. Surpassing even Bitcoin. Although, in the opinion of some analysts, both yields – that of Bitcoin and Ether – are difficult to compare, since their ecosystems and use are markedly different.

For its part, Cardano (ADA) has been the most developed blockchain in 2021. In addition to the success of the Alonzo update that has launched —in its proof of participation (PoS) network— smart contracts, managing to end the year with approximate profits of 621%.

Dogecoin (DOGE), has enjoyed impressive growth throughout 2021. This, fueled largely by the famous CEO of Tesla, Elon Musk, whose posts on the networks have caused the token to skyrocket, increasing its value by an impressive 3,549 % At the end of the year.

And, although its birth has its germ in a joke, we cannot avoid mentioning the popular Shiba Inu (SHIB) that has achieved a not inconsiderable growth of 259.698% in its valuation throughout the past 2021.

What to expect from 2022?

The truth is that we do not know how the price of cryptocurrencies will evolve in 2022. But what we must bear in mind is that we are talking about speculative assets. And, due to this, in the opinion of some analysts, the macroeconomic context will influence them whether they like it or not, in a sentiment manifestly contrary to that of other analysts who deny the influence that the FED can exert —for example— in this sector.

Given that the scenario in which we find ourselves is dominated by uncertainty, investors’ sentiment is usually conservative and seeks protection in traditionally more stable instruments.

But there may be a glimmer of hope because all of the above does not necessarily imply that 2022 cannot be a year of growth despite the fact that we live through a few months marked by volatility, since the latest reports regarding the employment stimulus that Powell was seeking by accepting an increase in inflation, they have shown some very noticeable improvements with the success that this can mean for the recovery.