The financial markets have witnessed great volatility over the past weeks, as the stock and bond markets have witnessed a sharp decline while the value of Bitcoin and most major cryptocurrencies has risen significantly, all of these fluctuations are due to the impact of financial markets on the decisions of the US Federal Reserve to raise interest rates in an attempt to control inflation.
As an investor, how do you develop a strategy to protect yourself in light of the violent volatility in the financial markets?
Writing for the British newspaper "Independent", writer Hamish McRai said that the best thing to do in such turbulent times is to think calmly and look for the best sources of new information that will help to make appropriate judgments.
He suggested that we could draw several key lessons from this rugged period, and the area of total uncertainty that could last at least two years.
Interest Rates
The first lesson revolves around the fundamental issue of interest-rate policy that the Federal Reserve took, when it decided last June to increase by 0.75% in an effort to crush inflation, even if it leads to a recession in the US. This decision revealed that the transition to a tighter monetary policy undermines the most difficult categories of investment, such as speculation in cryptocurrencies.
No one knows the reality of the situation
The second lesson learned reveals that experts do not know the reality of the situation, as the PwC report by Audit, Confirmation, Advisory and Tax Services indicates that the majority of crypto fund managers believe that Bitcoin will be worth $100,<> over the next two years.
In fact, normal metrics do not apply to this type of asset and therefore cannot be valued, adding to the uncertainty.
The American website "Forbes" published an article by writer Ilona Lemonta Volkova about her most important advice for investors in such time periods. Pattern recognition is a powerful tool in financial analysis, yet even the most skilled investors fall into the trap of firm or repetitive thinking that "this time will be the same as before." Although it is logically understood that there is no recession like the one that preceded it, the vast majority of passive planning is based on the 2008 global financial crisis.
Past performance is not indicative of future results
It is impossible to predict whether the next deflation will have the same magnitude and long-term characteristics, and that a fall in cryptocurrency prices is by no means inevitable, however it is wise to recall that yesterday's results should not be relied upon.
Do not give up on health doubts
The author pointed out that she attended the "Wharton" school at the University of Pennsylvania, and has an MBA, and that her daily job is in financial services, and she has all the qualifications that enable her to understand cryptocurrencies and decentralized finance, however, she admitted that she often faces difficulties in contextualizing and understanding the complexities of the world of digital currency really, and stated that in conversations with experts in the digital trading market she suddenly finds herself ignorant in front of those who are more familiar with her. The author added that there must be what is known as health skepticism, and a reminder of the importance of forming a logically contrary point of view.
It might be a good idea to just watch
The fintech landscape is evolving rapidly, with products, tariffs and metrics constantly evolving, and it's perfectly reasonable to be an observer, not an active participant, you don't have to form an opinion right away, or indeed at all, and you can take your time to learn, ask questions, and come to your own conclusions.