The protracted volatility of mainstream markets during the coronavirus pandemic will change the way that people trade, perhaps irreversibly. The past volatility of digital coins has made investors wary of the long-term potential of cryptocurrencies, but that stops being an issue when all markets are volatile. While the pandemic endures, mainstream markets are not expected to show any upward mobility, but cryptos’ lack of market correlation could work in their favor.
While price fluctuations can provide opportunities for traders to generate a profit, high volatility often means that these opportunities disappear before investors can capitalize. Moreover, periods of high volatility are characterized by the trading community’s overriding lack of faith in an asset. This means that any price rises can be both limited and fleeting, with oscillations in value often part of a process in which an asset trends downwards.
One way that investors make the markets tradable again is by adapting their strategy to fit with those downward trends. This is why traders frequently utilize option trading during periods of high volatility, with options trading giving investors exposure to an asset’s future value rather than any current fluctuations. Crucially, options traders have the ability to speculate on market falls as well as market rises.
The coronavirus outbreak has had a significant impact on the stock market, thereby affecting traders’ strategies. As previous economic crises have demonstrated, bear markets do not simply reverse overnight. Indices are liable to crash at any moment during the pandemic, so markets’ outlook will remain bleak until a coronavirus vaccine is found. There is little sense in traders pursuing typical investment strategies, as these are not typical times.
A strategy that avoids mainstream markets
Options trading is an effective way to investors to mitigate the consequences of the coronavirus on market movements. Another way to adapt in conditions where mainstream markets are affected by extreme volatility is to avoid those mainstream markets altogether through crypto trading. Their relative infancy means that we are still learning about how cryptocurrency markets respond to global economic crises; Bitcoin was only launched in 2009, so the digital coin was not subjected to the effects of the Lehman Brothers’ collapse the previous year.
Many are drawn to cryptocurrencies because of their divergence from standard financial mechanisms, as their movements in value are rarely driven by the same factors that shape stock market swings. The pandemic has put that disconnect to the test, with Bitcoin and other crypto markets dragged down as global indices crashed in March. While Bitcoin suffered one of its worst crashes, the coin demonstrated resurgent qualities by posting a 20% rise in a 24-hour period.
The resurgent qualities of cryptos
Even if cryptocurrencies are vulnerable to the same crashes as mainstream markets, these digital coins’ general lack of correlation with the global economy can allow cryptos to rebound quickly and significantly. Bitcoin may have experienced its highest volatility in six years as the world economy suffered in March, but cryptos may well provide traders with increasing opportunities as forecasts for traditional markets remain bleak.
New traders have been drawn to crypto markets as the pandemic has gripped the global economy, encouraged by the endorsement of companies like Revolut. The fintech giant has announced support for cryptocurrencies as a new safe haven investment for these volatile times. The longer the pandemic causes mainstream markets to stagnate or slump, the greater the ceiling of cryptocurrencies.
Traders can anticipate the size and speed of the pandemic-driven decline of assets, using options trading to speculate on the direction of an underlying market. Taking a new approach to old markets can be one way to negotiate the impact of the pandemic, with the traditional strategy of backing assets to rise in value currently more suited to cryptocurrency markets.