Risk is a concept closely related to uncertainty. You could say that it is the probability of losing something of value in a given circumstance.. However, there are situations more uncertain than others. Therefore, the level of risk is not always the same in all contexts. On the other hand, it is extremely important not to abuse the term. The word “risk” has different meanings in different settings. If, in the same argument, we use the word “risk” irresponsibly, the conversation can turn into a semantic nightmare. For example. My God is music. I listen to music all the time. So, God does exist. That is not a serious argument. The fallacy is obvious. The misunderstanding is clear.
The crypto space is particularly prone to abusing the term “risk” for sentimental reasons. The word “risk” attached to Bitcoin offends many people. Because, for the beloved target, only flowers are accepted. Risk is the opposite of safe. And, for fans, Bitcoin is safer than death. So, “risk” is interpreted as an attack that requires a defense. “The only risk is not investing in Bitcoin.” Of course, this is more of a psychological issue than a technical one. It is more related to fanaticism and ignorance than to thermology. Describing is not attacking. According to the concept of risk, some assets are riskier than others. In these cases, normally we are talking about financial risk. And this usually is directly linked to the variability of the return. In other words, the financial risk is the possibility of not obtaining the desired return in the stipulated time.
Volatility is a sign of high financial risk. The price risk. In this context, the stock market is riskier than the bond market. Here, with that statement, it is not being argued that the bond market is better than the stock market. And we return to the issue of uncertainty. The bond market is more stable and with predictable income. So making plans is easier. What will be the exact price of Tesla on December 31 of this year? We do not know. But in the case of a 10-year T-bond, the answer is much clearer.
It is accepted that the Nasdaq is a riskier stock market index than the Dow Jones and the S&P 500. Why? Because of the volatility. The Nasdaq index is made up primarily of “growth” companies. And the “growth” sector is considered a more speculative environment than the “value” sector. Well, “value” companies are usually companies with good sales and good fundamentals. They are organizations with proven success. Coke, for example. They tend to be relatively stable giants. On the other hand, a “growth” company is more future than past. Suddenly, they’re not as good on paper as a “value” company. They are promises. Many things can happen along the way. Some promises are kept. But others are not met. The risk is higher. But the opportunity is also greater.
assets risk on are the most exciting assets. Because are the assets with the greatest potential that offer the best returns. assets risk-off, on the other hand, they are the most boring and insipid assets in the basket. An aggressive investor who wants to grow quickly is always on the lookout for the best assets. risk-on. Of course, not everything is rosy. assets risk on They tend to be cyclical. They go up a lot during a bull run. But they tend to go down a lot during a downtrend. That’s because volatility is a double-edged sword. And because the investor behaves very differently in times of pessimism. During a bullish wave, the investor is willing to take big risks in search of big profits. Volatility is tolerated. During a bearish wave, the investor avoids losing money at all costs. The preference of the stable over the variable prevails in periods of high uncertainty.
What is the problem? The problem is ideology. Politics is very blinding. The Bitcoin community was founded by many libertarians, anarcho-capitalists and talkers who wanted to have a “digital gold” to start a monetary insurrection against the State and fiat money. It could be said that the first bitcoiners were gold beetles 2.0. Consequently, they inherited many of the dogmas and habits of their predecessors. First, they inherited the concept of money as a commodity from classical liberalism. Money is a commodity. A commodity is a scarce good. Therefore, its value naturally increases with an increase in production. All money that is not a commodity is a scam. It is “no money”. In addition, state intervention in the economy is harmful. In other words, the system is a ticking time bomb. The catastrophe is imminent. POf course this narrative is not new. Gold beetles have had this same scratched disc for centuries.
The gold beetles argue that the solution to today’s problems lies in the ideas of the past. In fact, they still talk like John Locke did in his day. Gold is promoted by creating fear. Do you want to be safe during the collapse of everything? Buy gold. TAll their lives gold lovers have maintained that characteristic apocalyptic and anti-establishment tone. That rhetoric warns us of a “systematic risk”. It refers to a probable institutional collapse. Gold is presented as a “safe haven” due to its (relative) stability and universality. Gold is not the result of the nation-state structure. Fiat currency is. I mean, gold can survive Armageddon. Gold is not something abstract. It is something concrete. A commodity with physical reality and practical uses. Financial risk and systemic risk are two slightly different concepts. They are not exact synonyms. Watch out for this.
Investors, for the most part, usually dismiss the doomsday predictions of the gold beetles. Gold remains a very popular investment in many portfolios due to diversification. The investor perfectly understands the existence of cycles. But there is still a lot of confidence in the dollar, in the banks, in Wall Street and in Uncle Sam. Not many people these days are hiding gold coins in their backyard waiting for Judgment Day. We know that from volume and price action. The dollar, T-bonds and stocks are still selling like hot cakes. Or not?
Bitcoiners inherited that apocalyptic vibe from the gold beetles. Due to ideological affinity, many struggle with a false equivalence between Bitcoin and gold. And the old warnings of systematic risk are used to deny the existence of a financial risk in Bitcoin.. But not all investors are fools. Bitcoin is known to be a highly volatile asset. Good risk management is required. It is also known to behave as an active risk-on. And moves along with other assets risk on. The investor must be very aware of the risk that buying BTC represents. Denying that risk out of ideological passion is irresponsible. It is very important to be honest with the public in this regard. Semantic tricks are misleading.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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