Can Bitcoin Risk be Managed?

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Avatar for Munnaktk
3 years ago

Hello!  Friends, Good morning

Its actually long ago here we study some information that can help in terms of crypto investment on blog. Recently I was considering the rise and dip as it applied to bitcoin the first digit asset in crypto space and I feel to drop some tip can be of help to investors and upcoming one. 

The characteristics of high volatility  Bitcoin has made it good and promising coin to invest more in it but also the opportunity resulted to a significant risk on this coin. 

Note: It is impossiblebto eliminate risk,  but it can be reduce by means of tool which helps you to manage the risk associated with Bitcoin. 

Let's look at ways to manage risk associated with Bitcoin investment. 

Do You Analysis Through Value At Risk. 

When you consider the general measurement people in asset management use when it comes to risk management it is Value at Risk (VaR).  This term is well recognized because its the one that show the maximum amount of an asset value you rather consider losing from an investment over a specific period of time. This means there is a pre-estimated value you are looking at losing,  which stand as a baseline on how to manage the risk they may occur. 

Most time VaR is in operation,  its brought in confidence interval which is usually be at 95 percent,  i.e.  when you consider a portfolio that has 95 percent 4 weeks VaR of saying $30,000, it means that such portfolio is having 95 percent confidence that its portfolio risk of losing more than $30,000 ofbits asset value is not possible till the end of 3 or 4 weeks. 

You may ask,  how is this going to be Managed? 

I have three important method right here that can be of good help in the calculating VaR for Bitcoin and other coin you may be considering. 

  • The Variance-covariance calculation (VCC). 

​​​​​In ​​​​this type of VaR management, there is an assumption which go with the returns of a particular asset which is normally distributed. When the estimation of expected return and standard deviation of Bitcoin as an asset has been carried there will be  a bell curve that show possible returns and this gives you confidently say 95 percent risk of losing not going to exceed your loss prediction of 5% mark is certain on the bell curve you draw.

  •  The Historical calculation. 

This is the second method I considered very useful whivh go inline with study an asset history and make your predictions based on the performance of the coin in the past. Here,  you will need to consider historical data on asset returns you are considering like Bitcoin daily returns and this will show you the greatest gain as against greatest loss. When you consider 5 percent from 70 percent loss to 30 percent loss base on the bottom losses,  then you can confidently say,  The risk of losing daily in Bitcoin asset won't exceed 30 percent of your investment. 

  • ​The Monte Carlo simulation. 

Monte Carlo simulations is the method of future prediction on the outcome of things just by construction of model of prices and do some random trials by making use of the model constructed. 

Here,  google will help you out.  All you need is google out Bitcoin Monte Carlo simulation and you will see provision of different data that show analysis of Bitcoin price some analyst has forecasted.

There are more to Bitcoin risk management, but in other not to border you with much stories,  I will stop here to continue later. When considering Bitcoin risk management,  your starting point should be value at risk(VaR) and its focused on 95 percent confidence base on statistics. 

Thanks for reading and support

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Avatar for Munnaktk
3 years ago