Is Investing in Crypto and Fiat Currencies Worthwhile in 2023?

As the year comes to an end, investors are wondering whether putting money in currencies and digital coins is even profitable, considering how turbulent 2022 has been.

After difficult years of the pandemic, this year was expected to bring a respite and economic rebound, but it has deceived optimistic expectations. It has been filled with geopolitical disasters, climbing living costs, high inflation, and fears of a global recession.

The Federal Reserve has repeatedly pushed rates higher and will probably raise them even more to a 4.25%, 4.5%, or even 5% level before the end of the year. Financial markets have been shaky, with some fiat and digital currencies sinking unprecedentedly deep and wealthy companies filing for bankruptcy. Before explaining why options trading is worth it, a brief overview of the present state of the crypto and forex markets is in order.

The crypto market took a rollercoaster ride this year. It has lost more than $1.4 trillion in value this year as the industry has been plagued by a host of problems: from failed projects to a liquidity crunch. The most brutal blow to the sector was dealt in November when FTX, once a stable exchange, announced insolvency. Many digital coins were bruised in the wake of its collapse.

As the leader of cryptocurrencies dived to a two-year low, investors started to fear that FTX’s bankruptcy would crash the industry or, at best, push it back by a decade. Considering that Bitcoin drastically slid several times in 2022, to the $30.000 level in May and below $19.000 in September, investors’ worries might be justified. Digital coins might indeed be poised for a rough ride again in 2023.

The currency sector did not fare much better this year. Although the US dollar has enjoyed relative stability this year, other currencies will mark 2022 as the dark time in their history. Europe’s common currency has inexorably followed a declining trajectory, brought down by the raging war in Ukraine and soaring commodity and food prices. It even dipped twice to the lowest levels in twenty years.

In July, the euro slumped to $1.0281 and threatened a push toward dollar parity. On August 22, the scales finally tilted in the greenback’s favor. The EUR sank to 0.9951, thereby revisiting the levels last seen in 2002, just a few years after the currency came into existence.

Another currency that has borne the brunt of geopolitical and economic instability this year is the British pound. At the end of September, the GBP hit a low of $1.03, spurring predictions that it would tumble to parity with the US dollar. The previous record low for the Sterling against the greenback was thirty-seven years ago, in February 1985, when one pound was worth a little over $1.05.

This year, the pound was negatively affected by the United Kingdom’s economic outlook. The country is presently suffering the highest inflation among G7 nations and experiencing the government’s immense fiscal gamble on growth. The prolonged war in Ukraine, the Queen’s death, and the rapid ascension of two Prime Ministers contributed to the currency’s weakness.

In the light, or rather the gloom, of the markets’ instability, the question of whether investors should put money in crypto and fiat currencies seems pertinent. Is it worth investing in these assets when the markets are so volatile and often skirt dangerously close to a collapse? The answer to this question is positive, a firm “yes.”

Once investors abandon their pessimistic attitude to volatility, they will see that shaky markets afford attractive earning opportunities. Volatility is not always an enemy; it can be a helpful friend. Investors need to know what trading strategies to employ in unstable times to identify these volatility-related opportunities for financial growth.

While crypto and currency markets are swinging, investors are advised to combine long and short volatility strategies that look to capture supply and demand imbalances. Demand imbalances are usually created when various regulations force investors to buy assets or when they engage in hedging; that is, they seek to offset risks and protect their portfolios.

Supply imbalances occur when investors look for additional yield on their investment by selling covered calls on a single stock or investing in callable bonds. Such imbalances bring handsome trading opportunities. Take covered call selling, for instance. It can cause stock volatility to trade cheaply to index volatility, allowing for equity dispersion trades. This involves selling index volatility versus buying single stock volatility representing the index.

Volatility is also instructive. It can teach investors about the crypto and currency markets ecosystem, showing what is possible and not possible, provided they learn to understand what signals volatility sends and reacts to. Nor is volatility dangerous to every investor. For long-term investors holding stocks for years, the day-to-day movements of these stocks are inconsequential. To those who allow their investments to accumulate long into the future, volatility is beside the point.

Therefore, even if the market volatility is carried over into the following year, this does not mean that investors should turn away in frustration from crypto and fiat currencies. Once they begin to study volatility and clearly understand what information price changes communicate, they will be able to use any market instability to their financial advantage.

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