The price of bitcoin has dropped 27% in less than a week.
The anomalous price volatility of bitcoin was caused by the forced liquidation of investment giants such as BlackRock and Sequoia Capital.
During periods of Bitcoin downturns or high volatility, it is important to use crypto insurance products.
The latest news talks a lot about the collapse of the giant of the cryptocurrency market FTX, which until recently was in the TOP-3 crypto exchanges of the world and had a valuation of more than $30 billion. After a series of negotiations with Binance, the company finally filed for bankruptcy. It could not be that such an event did not affect the market as a whole. As a consequence, Bitcoin has fallen 27% over the past week, from $21,500 to $15,700, the lowest since 2021.
Cointelegraph reports that Sam Bankman-Fried, founder of FTX, ran his trading firm Alameda Research using assets from FTX clients. In addition, Alameda Research reportedly had $8 billion in liabilities. Since Bitcoin is used as common collateral for various cryptocurrency contracts such as DeFi contracts with FTX, it has also suffered and become one of the biggest losers in the crypto space.
In addition, the volatility and price of bitcoin was affected by the liquidity crisis and the forced liquidation (because its value at risk was at a critical level) of investment giants such as BlackRock, SoftBank, VanEck, Sequoia Capital or the Ontario pension fund that invested in FTX.
Crypto winter continuation
Since the beginning of 2022, bitcoin has fallen by 67%, continuously destroying people’s hopes for a reversal and an early end to the crypto winter every day. Bitcoin has fallen over 78% since last November’s highs. The total capitalization of the crypto market suffered losses of almost $2.2 trillion, and the volatility of bitcoin increased by more than 50%.
People have become anxious about joining the industry and don’t want to risk losing their funds, especially given the looming fear of a recession. But how can investors protect their assets?
Ensuring the Price Behavior of the Cryptocurrency
There are a number of tools and strategies that an investor can use to hedge risk and protect against losses. Futures, swaps or options are generally considered good trading instruments. But in this article, I would like to highlight another, perhaps simpler tool – cryptocurrency price insurance.
This type of insurance makes it possible to protect the user’s digital assets from adverse price fluctuations and bursts of market volatility. As a rule, it works like this: after buying a cryptocurrency (Bitcoin, Ethereum, Ripple, Solana, etc.), the investor can conclude an insurance contract for a suitable period of time, the desired number of digital assets to be insured and set the price at which the assets will be insured .
Upon expiration of the insurance contract, the service provider will value the value of the investor’s digital assets in accordance with the current market rate. If the rate turns out to be lower than the price at which the investor originally bought and insured his cryptocurrency, the provider compensates for the difference.
Summing up, we can say that cryptocurrency price insurance is a tool very similar to traditional options, only with some shortcomings eliminated. Since the provider company takes care of all the hard work, users do not have to personally hedge their risks, which makes the whole process much easier and smoother.
In addition, companies can provide insurance coverage using various assets: cryptocurrencies, tokens, the USDT stablecoin, or even fiat currencies such as US dollars or euros. This versatility is of great benefit as users can choose their preferred compensation method.
So, with that kind of insurance, investors could have survived the latest bitcoin crash without losing a dime.
Crypto insurance as one of the ways to beat the market
One of the most important aspects in portfolio management is the pooling of assets that allow you to get the highest return with minimal risk. It is important to protect your portfolio during recessions or periods of high volatility by using various financial instruments.
Insurance services like the ones we discussed above can be an effective way to attract more retail and institutional investors because they provide assurance that people feel more secure in a risky environment. If price insurance becomes a core service offered by any crypto platform in addition to other products, it will be seen as a sign of the maturity of the digital asset ecosystem.