When it comes to cryptocurrencies, everyone notes their volatile nature. One cannot say bad or good about crypto volatility. Someone volatility helps to earn their bread, someone it leaves without pants. But if you master the secret tools of volatility management, you can confidently refer yourself to the first type.
- Cryptocurrency is the most volatile financial asset; there are pros and cons to it.
- Crypto payments have a large list of benefits that more than cover volatility drawbacks.
- With NOWPayments, you can manage crypto volatility easily.
What is crypto volatility?
In the financial environment, the basic meaning of the term “volatility” is usually referred to as the degree of variability in the price of a certain asset. Anyone, even the most inexperienced user, can determine the degree of volatility simply by looking at the historical price chart of an asset. By determining the lower and upper limits that the price reaches over a given period, you can find out the nature of the variability of the asset.
If, for example, the exchange rate changes by an average of 5% per month, this can be considered normal (moderate) volatility of the instrument. If there are sharp fluctuations, for example, the price starts to rise or fall by 20% in the same time period — volatility is considered high. On the other hand, if the exchange rate fluctuation changes by only 2%, the volatility is low.
This measure is known by comparison. For example, the volatility of the Bitcoin cryptocurrency for trading in comparison with assets on stock exchanges is considered very high. But Bitcoin will be considered less volatile if you compare it with some kind of seasonal tokens with low or medium liquidity.
Why manage crypto volatility?
It’s no secret that high crypto volatility plays into the hands of traders and investors. But it also carries certain risks. In the same way, crypto volatility has two sides of the coin for providers of goods or services. You can both significantly increase your profit at those moments when the asset price soars. And suffer losses when the price is falling rapidly. You may wonder, “Why do I need such risks?”, but a successful merchant knows for sure how crucial it is to jump on the bandwagon and accept crypto for payment. If you find ways to manage crypto volatility, you will gain many benefits for your business. Firstly, you will get all the benefits associated with crypto payments, namely:
- Speed. International crypto transactions take much less time compared to bank transactions. For example, Bitcoin payments can arrive in your wallet within a few minutes, and coins such as DASH or SOL allow for instant settlement. In addition, there is no fear of freezing or canceling the payment.
- Low transaction fees. Most of your customers close the tab of your store when faced with crazy fees that impose bank payments. In the case of cryptocurrency, the transaction fee is mere pennies, and sometimes there is no fee at all.
- Safety. Since there is no need to enter your personal data to work with cryptocurrency, you will not become a target for hackers.
- Chargeback free. Cases of chargeback fraud can cripple even the most prosperous business. Transactions in the blockchain are irreversible, thus depriving malicious actors of a trump card.
- Attracting a huge base of potential customers. More and more users worldwide are becoming interested in cryptocurrency, not to mention the millions of users who have long recognized cryptocurrency as a more advanced and flawless financial instrument. The fact that your business accepts crypto for payment can be a great marketing ploy to attract customers.
- Expanding the boundaries of your business. Due to the high fees for cross-border bank payments and their slow speed, most foreign clients refuse to deal with your store. With crypto, the situation is completely different. To make fast and cheap transactions with cryptocurrency, it absolutely does not matter on which continent your client is located.
The most crucial point is that if you master the methods of managing crypto volatility, you will not be afraid to suffer losses at times when the price of cryptocurrency drops. Thus you kill two birds with one stone.
How to work with crypto volatility?
The volatility of cryptocurrencies scares many traders away from this financial instrument. But in 2022, depriving your customers of the payment option with cryptocurrency means depriving yourself of customers. Therefore, as they say, “If you can’t change the situation, then change your attitude to it”. Fortunately, today there are methods of managing crypto volatility. Moreover, NOWPayments provides its clients with tools that can significantly facilitate your trading activities:
The rate of the stablecoin price is pegged to the dollar 1 to 1. Thus, by accepting stablecoins for payment, you eliminate the risks associated with volatility but benefit from a number of advantages inherent in cryptocurrency. NOWPayments supports the major stablecoins, including Tether (ERC20/TRC20), DAI, TrueUSD, and others.
|Payment markup||Payment covering|
|Assign some of the risks associated with crypto volatility to your clients. Payment markup is a surcharge (up to 10%) over the initial price. |
With such a tool, your profit will be more resistant to fluctuations in the price of cryptocurrencies. For example, if the price of an item is $100, then in the case of a 5% surcharge, your client will have to transfer an amount of $105.
|Set what percentage you are willing to cover in case your client has fully paid for the product or service, but during the transaction, the price of the cryptocurrency has dropped a little. |
Thus, you will save yourself from a headache with “partially paid” items. For example, if you are ready to cover 5%, and the price of the item is $100, then the purchase will be considered fully paid if the customer transfers the amount of $95.
High volatility represents both advantages and disadvantages of digital assets. But it is still important to note that despite the risks associated with volatility, crypto payments carry many more advantages than traditional financial assets. In addition, merchants who want to accept crypto as a payment option and have a stable income can use the volatility management tools provided by NOWPayments.