It’s an old saying, “cash is king,” but if it’s in a bank account or, in the case of a crypto-wallet, it decreases daily due to inflation. This is especially true now that US inflation is breaking its 40-year record. Although the average cost-per-dollar (DCA) estimate allows an investor to minimize the impact of volatility by buying volatile assets over time, inflation still causes the value of a significant asset to decrease over time.
For example, Solana (SOL) has a predetermined inflation rate of 8%, and if the yield is not generated through farming or the use of distributed financing (DeFi), one’s assets are declining by 8% per year.
However, despite the US dollar index (DXY) rising by 17.3% per year as of July 13, 2022, hopes of a significant return on the bull market are still pushing investors to participate in volatile assets .
In the upcoming “Blockchain Adoption and Use Cases: Finding Solutions in Surprising Ways” report, Cointelegraph Research will delve deeper into different solutions that will help withstand inflation in the bear market.
Download and purchase reports on Cointelegraph Research Center.
Crypto winter is a time when anxiety, panic and depression begin to weigh on investors. However, many cryptocurrencies have proven that real value can be gained in the bear market. For many, the current belief is that “buy and hold,” along with DCA, could be one of the best investment methods in cryptocurrency.
In most cases, investors refrain from direct investment and accumulate capital to buy assets when the macroeconomic situation improves. However, market timing is challenging and is only feasible for active daily traders. On the other hand, the average investor carries more risk and is more vulnerable to losses due to rapid changes in the market.
Where to go?
In the midst of a variety of disasters in the world of cryptocurrencies, there is a great deal of risk involved in placing assets in a lien on a chain, locking up liquidity portfolios or generating returns through central exchanges. In light of these uncertainties, the big question remains whether it is best to just buy and threaten.
Anchor Protocol, Celsius and other yield platforms have recently shown that if the basis of yield production is poorly supported by the tokenomics model or the platform’s investment decisions, too good a true return can be replaced by a wave of wear and tear. Creating a return on idle digital assets with centralized or decentralized financial rules with robust risk management, floating rewards and non-aggressive returns is probably the least risky way to fight inflation.
Both DeFi and Central Finance (CeFi) protocols can offer different return requirements for identical digital assets. With DeFi protocols, the risk of closing, for example a marginal return, is another major factor, as it limits investors’ ability to react quickly if the market changes. In addition, methods can involve additional risks. For example, a Lido liquidity item with stETH derivative contracts is sensitive to deviations in price from the underlying asset.
Although CeFi, like Gemini and Coinbase, unlike many other such systems, have shown prudent user fund management with transparency, the return on digital assets is insignificant. Although it is useful to stay within the framework of risk management and not take aggressive risks with the user’s money, the return is relatively low.
While it is crucial to keep purchasing science within the DCA framework and conduct research, it can be difficult to find a low-risk solution that yields significant returns. At the same time, a new cryptocurrency market will bring development that will hopefully bring new solutions, attractive in both risk and return. Cointelegraph Research assesses many areas and assesses the sustainability of current DeFi and CeFi returns in its forthcoming report.
This article is for informational purposes only and does not represent investment advice or investment analysis or offers to buy or sell financial instruments. Specifically, the document does not replace individual investments or other advice.
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