Wednesday, August 17, 2022

How Market Volatility Increases Options in Digital Asset Insurance

With many markets in limbo amid the uncertainty sparked by inflation and the direction many governments are willing to take to tame the increasing cost of living. Call options and crypto insurance seem the most probable route in the burgeoning stock market scene. But do they work?

Stocks have continuously taken many forms as markets try to diversify. An Eth trader in PrimeXBT has access to many markets from their trading terminal—a feat that was impossible in the past. The likes of digital currencies have taken the markets by storm. Bitcoin, for example, had an impressive run in 2021 that saw it hit over $65000. NFTs, on the other hand, had their best year in 2021, as they recorded a whopping volume of $17 billion.

However, about three months after the impressive feat of a historic high, Bitcoin prices plummeted to below $40,000. While such colossal drops provide good entry points for budding crypto owners, they present many losses for late entrants who bought the commodity while it was above $60000. A drop of up to $20k is still profitable to a long holder who bought the commodity at $1K per unit years ago. Still, it is a lot to handle for a buyer who started when the asset hit $50K.

How Do Stock Options Work?

Call options give the buyer a lifeline when stock prices rally to unprecedented levels, as the one seen by Bitcoin in 2021. When the rise happens, the stock owner has a specified strike price in a contract, usually lower than the upper limit a stock can reach.

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In circumstances of massive bullish sentiments in the market, call options can come in handy when economies have taken a better turn. That is when the uncertainties surrounding inflation and the tension in Eastern Europe have taken a better turn.

What Are The Downside?

While call and put options can safeguard PrimeXBT investors or stock investors during turmoil, they come with a price. Call options are only valid for a specified time, meaning investors who have them must be superb at reading the markets. Further, many call options do not come free. Some require heavy premiums because they allow uncapped profits when the asset rises to impressive levels.

What Are The Other Options To Consider Instead Of Call Options?

Crypto heists in the past have given a glimpse of the direction crypto-insurance can take in the future. On 25 March 2022, hackers stole over $600 million in a crypto project called Ronin.

While users of the network could not immediately access their funds, which fuel the popular game Axie Infinity, it is clear that no one will lose any of their assets. Ronin has given assurances about the possibility of using company assets to caution the gamers while investigations are ongoing.

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The heists are much like bearish market rallies that make the markets lose a lot of value in weeks. In late January, PrimeXBT’s price terminal saw Bitcoin plummeting to below $40k, and other crypto coins following suit, meaning that investors lost a colossal amount of money in the event. A person owning a unit of Bitcoin who bought it at its peak in November 2021, took a hit of over $20K within three months

Unfortunately, in such circumstances, no government security agency can help trace any lost assets like in crypto heists.

Crypto owners holding tumbling assets have few options. One is to hold on to their precious commodity and hope it will rally again in the future, or sell their assets as soon as the price touches their bottom lines.

However, with crypto-insurance on the horizon, investors can have their cake and still eat it; the only exception is the heavy premiums they have to pay and the fact that many companies are yet to take on volatile instruments, largely unregulated as an insurable commodity on offer.

Final Remarks

Insurance comes in plenty of ways for now; one is by investing in reputable crypto exchanges that offer the customers a reprieve in the event of a massive bearish run. However, as crypto gains more traction, more companies will ‌accommodate it and come to the rescue when prices are down.

Nation World News Desk
Nation World News Desk
Nation World News is the fastest emerging news website covering all the latest news, world’s top stories, science news entertainment sports cricket’s latest discoveries, new technology gadgets, politics news, and more.
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