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Last year’s unprecedented crypto rally met an unfortunate end as decentralized currencies lost more than $2 trillion in value since the 2021 bull run. In fact, many cryptocurrencies collapsed, including a USD-pegged stablecoin, further exacerbating the crypto winter.
Kaiko Research director Clara Medalie said: “As markets started to sell it became clear that many large companies were unprepared for the rapid reversal.”
While recent trends have spooked investors worldwide, this isn’t the first crypto winter. Decentralized currencies endured a crypto winter in 2017-18 when major digital assets crashed due to a bursting bubble.
The cryptocurrency market is poised to rebound along with the global economy as macroeconomic headwinds ease. As a matter of fact, Bitcoin rallied more than 8% in 24 hours mid-month as the Fed signaled less aggressive rate hikes in the coming months.
Liquidity pools may not be the ultimate trump card
With increased market volatility, crypto investors are increasingly turning to liquidity pools to hedge risk. However, they often forget to account for temporary losses when staking or escrowing decentralized digital assets within a liquidity pool.
More than 43% of investors who participated in liquidity pools suffered significant temporary losses in 2021, according to a study published by Cornell University. Holding tokens has historically produced better returns during times of high market volatility compared to liquidity pools.
To hedge against fickle losses, the Crypto Volatility Index (CVI) developed Armadillo using the Black-Scholes option pricing model. This decentralized risk management solution mimics how an insurance policy works, where customers can purchase a custom policy (depending on their cryptocurrency holdings) for a specific coverage period. All temporary losses incurred during the cover period are covered by Armadillo.
Armadillo is the only solution that offers cross-chain protection. It also offers fickle loss protection on all decentralized exchanges (DEX) and liquidity platforms. This means that you do not need to place any wagers or provide liquidity on the Armadillo platform in order to avail the fickle loss protection.
By hedging the systemic risks in this way, investors can enjoy significant returns on crypto investments even during the winter.
While you can hedge some of your risks, let’s look at a cryptocurrency that is a top buy right now.
Polkadot: The Next Generation Blockchain
Dot pattern (CRYPTO:DOT) has gradually gained prominence among crypto connoisseurs thanks to its unique blockchain ecosystem. Titled as “ether Killer,” the nominated proof-of-stake network, is known for facilitating interoperability across blockchains, thereby paving the framework for building a truly interoperable decentralized web.
Polkadot’s native token DOT is based on an inflationary token model. As a result, Polkadot network validators are eligible for inflation premiums that average about 10% per year. This is higher than the current rate of inflation in the economy, thus ensuring positive returns for network validators.
Polkadot’s market cap fell 86% from its all-time high to end the second quarter at a valuation of $7.90 billion. However, network usage and developer activity remained consistent from quarter to quarter. Last quarter, Polkadot had an average of 145,000 monthly users, including 68,000 new users.
The stupid snack
The crypto winter has definitely rocked the digital asset ecosystem as many currencies and crypto mutual funds have collapsed. As a matter of fact, Tesla recently dumped about 75% of its Bitcoin holdings, further alarming investors.
Still, there are several ways you can hedge your crypto assets against the current market risks. Additionally, investing in emerging, fundamentally sound blockchain solutions like Polkadot could help you generate massive returns in the coming months.
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