Central banks and key leaders are increasingly raising further alarms for rising inflation, causing spirals of doubt across the world. Just recentl
Central banks and key leaders are increasingly raising further alarms for rising inflation, causing spirals of doubt across the world. Just recently, United States Treasury Secretary Janet Yellen called for Congress to either raise or suspend the U.S. debt ceiling, stating that the government will run out of money to pay its bills by October.
What seems to sound more like a horror film of the future is merely the front news of global financial publications at the moment. Yellen stated that the overwhelming consensus among economists and Treasury officials of both parties is that failing to raise the debt limit would produce widespread economic catastrophe, “potentially precipitating historical financial crises, stock sell-off and recession, creating severe market volatility.”
The value of the U.S. dollar will continue to decrease in the future, and individuals need, more than ever, simple, rather than complex, tools to protect themselves from financial risk and diversify their portfolios.
Risk events have also become more common in global finance, with margin calls and liquidation issues now impacting both traditional finance and decentralized finance (DeFi) as they become increasingly interconnected. The ongoing Evergrande real estate crisis is further evidence that poor-decision making from a wide variety of markets will impact markets we thought weren’t connected, like crypto.
General confidence in global finance has declined, and understanding of how money works has worsened over time. Historically, poor moves by policy-makers have left more than 31% of the world’s adult population unbanked.
However, more countries are beginning to explore different currencies as decentralized finance becomes more widely adopted. Crypto, which is inherently complex, is finally moving into the next iteration, seeing the rise of tool and infrastructure development that is helping newcomers navigate the risks and uncertainties of the burgeoning but nascent movement of finance. It is up to leaders in this space to help newcomers reduce their portfolio risks.
Related: Mass adoption of blockchain tech is possible, and education is the key
Democratizing finance involves lowering the entry barriers to risk management
Unfortunately, cryptocurrencies are inherently volatile. Hundred-billion dollar market wipeouts are still nothing out of the ordinary, with the market capitalization recently taking a $2 trillion hit. Speculation, announcements and other happenings can easily influence investor confidence or a lack of confidence, as demonstrated by recent events with the SEC crackdown and El Salvador in the last few weeks. The SEC was forced to tell investors to be wary of volatility and fraud of cryptocurrencies as regulators amp up crypto scrutiny.
Even Bitcoin (BTC), despite being relatively established as a cryptocurrency, remains at the mercy of celebrity tweets like Elon Musk, whose actions with Tesla and tweets pushed prices low.
The market is relatively new to mainstream adoption, and cryptocurrency assets tend to be concentrated among an abundance of whales. The actions of large players heavily influence price movements of cryptocurrencies, and new investors with less holding power are more likely to be caught unaware due to the complex nature of the DeFi and cryptocurrency market.
Related: Institutional investors won’t take Bitcoin mainstream — You will
While in this phase of being vulnerable to whales’ actions, understanding how to control levels of risk are critical to encouraging mass adoption, especially for new investors with less capital.
Cryptocurrencies have brought democratization of wealth access: 24 hours a day, anyone can access financial assets with the click of a button, with assets that earn a higher yield than any fiat asset held by a traditional bank. The removal of bureaucracies and intermediaries has enabled greater opportunities for wealth creation, providing the assets and tools that can be understood.
But, at the moment, crypto is simply mirroring the wealth gap in traditional finance because those who are fluent in the languages of crypto understand how to be strategic. Ultra-wealthy crypto holders have the means to pay investment funds and brokers who have access to traditional backed investment tools such as providing trading, custody and financing services to ensure their investments are correctly balanced against the market at all times.
What is portfolio rebalancing?
Portfolio rebalancing is the process of realigning the weightage of a portfolio of assets, involving buying or selling assets periodically to maintain a targeted level of asset allocation and risk. It can help investors manage downside risks while still participating in most of the upside.
This process is critical during moments of financial instability to help individuals mitigate the risks of loss and depreciation of their digital assets. Many investors, especially those under 40, are unaware of how to, nor have time to, pay…
cointelegraph.com