Talk about cryptocurrencies is synonymous with talking about volatility, and the case of dogecoin proves it. This cryptocurrency, which emerged literally as a joke, plunged more than 77% in dollars in just 45 days. What does this worrying bearish behavior tell us?
The striking volatility of dogecoin
Since the year started, dogecoin, accumulates a rise of more than 6,350%. This means that if an investor placed $ 100 on January 1, 2021, today they have around $ 6,350. At first glance, it looks like it was a winning trade, and indeed it was, as long as it was purchased dogecoin at the beginning of the year and kept in the portfolio until now.
However, the reality is that very few people are willing to have a portfolio in their portfolio. cryptocurrency of these characteristics for several weeks, months or years. The main reason is that it does not have a rationale behind it that indicates why it should go up or down in price; everything is based on irrational supply and demand. This causes the asset to have a lot of volatility, which is reflected in the frantic behaviors of dogecoin.
The importance of risk management
And for dealing with cryptocurrencies one of these qualities is that it is very important to have a correct management of risk, since the risk is not in the asset itself, but in how much money is deposited in it.
For example, The Coca-Cola Company is one of the most stable and conservative stocks in modern history, however, if a person sells his house and goes into debt to place absolutely all the money in this company, the risk assumed would be extremely large. and dangerous.
The same thing happens with dogecoin and else cryptocurrencies. If an individual had only placed 1% of their capital destined for investments in this active meme, the recent fall of 77% in dollars would not have affected their financial situation, since they would only have lost 0.77% of all the money of your portfolio. On the other hand, if he had placed 100% of his assets, that person would have been worth 77% less.
To avoid this possible and devastating scenario, it is recommended to build a portfolio that is properly diversified and invest in volatile assets only an amount of money that is consistent with the risk profile of each investor.