What if… volatility wasn’t the enemy?

Is volatility bad? 

The first question we should ask ourselves is: “Why is volatility seen as a bad thing?” On the surface, the answer seems simple: Chaos breeds instability, and instability makes growth and prosperity harder to achieve. For long-term investors, high volatility can be particularly challenging as it increases the potential risk of losses and makes it difficult to stay the course. 

But there’s more to this story.

Volatility is an essential part of any market, especially in crypto, offering valuable insights into investor behaviour and overall market sentiment. Multiple factors, from international news and political events to regulation and social media, can strongly impact volatility. And while fear can often make navigating this turbulence seem risky, the other side of the coin reveals opportunity for investors who know where to look. For active traders, high volatility can offer the chance to profit from dramatic price shifts in fast-moving markets. For long-term holders, it may present rare entry points that only appear when sentiment hits a low, and prices may not reflect an asset’s broader potential.

International Boxing Hall of Fame trainer Cus D’Amato once famously said: 

“Fear is like fire. You can make it work for you: it can warm you in winter, cook your food when you’re hungry, give you light when you are in the dark… Let it go out of control and it can hurt you…”

In this regard, market volatility is much the same. It’s important to respect its influence, but if you learn to harness its power, it can become a powerful tool. 

To better comprehend how fear can shape market movements, we need a way to measure these emotions at scale. That’s where the Crypto Fear & Greed Index comes in.

What is the Crypto Fear & Greed Index?

Emotion is a powerful driver of market volatility. The Crypto Fear & Greed Index is a widely used tool for tracking emotional sentiment in the crypto market, helping investors gauge when fear or greed may be influencing prices.

The index draws on a range of data sources, including price volatility over the past 30 and 90 days, trading volume, Bitcoin dominance, social media activity, and Google Trends data for Bitcoin-related search terms. These factors are combined into a single score ranging from 0 to 100:

• 0–24: Extreme Fear
• 25–49: Fear
• 50–74: Greed
• 75–100: Extreme Greed

Simply put:

• Extreme fear indicates that investors are anxious or hesitant, often following a market sell-off.
• Extreme greed shows that investors are confident or elated, often during sustained rallies.

What if you invested in crypto during times of fear?

Like traditional financial assets, crypto prices are volatile, influenced by factors like market hype, supply and demand, social media, global news, and regulatory updates. However, what makes crypto different is the scale of the price changes. It’s not uncommon for Bitcoin to fluctuate by €2,000-€3,000 in a single day. Conversely, the most volatile stocks may only see price shifts that are a fraction of that.

During periods of extreme fear, this volatility becomes even more pronounced. Prices can swing dramatically in either direction, creating both elevated risks and potential opportunities.

So, how might different strategies have played out in these conditions?

One approach is cost-averaging, which involves investing a specific fixed amount at regular intervals, regardless of the asset price. This smooths out volatility over time and reduces the impact of short-term market swings. However, in a strongly rising market, it may underperform a lump sum investment made at the lowest point.

Conversely, with the lump sum approach, you could benefit significantly if prices rebound quickly, but you would also experience more risk if prices continued to plunge right after your investment.

To explore the contrasting approaches, we’ll look at two hypothetical scenarios:

• Consistently investing €100 every month during a fear-driven downturn*

• Investing the overall investment amount as a lump sum at the peak of that fear period*

For this comparison, we’ve focused on Bitcoin, Ethereum, and Ripple, three of the most popular and widely held cryptocurrencies, chosen for their market relevance, historical data availability, and ongoing role in shaping the broader crypto landscape.

*All figures are rough estimates based on 0% commission and continued investment until April 2025. This is for demonstration purposes only. 

COVID-19 & Black Thursday

In this black swan event, the global panic over COVID-19 lockdowns triggered a massive sell-off across every market. BTC dropped around 37% in 24 hours – one of the steepest single-day declines in its history.

• Date: March 12, 2020
• Fear & Greed Index: Extreme Fear (14/100)
• BTC Price: €4,444
• ETH Price: €100
• Ripple Price: €0.125

Bitcoin (BTC)

Cost-averaging strategy

• Total investment amount: €6.1k
• Asset value: €19.87k
• Total gains: €13.77k
• Percentage return: +225.8%

Lump sum approach

• Total investment amount: €6.1k
• Asset value: €63.65k
• Total gains: €57.55k
• Percentage return: +943.4%

Ethereum (ETH)

Cost-averaging strategy

• Total investment amount: €6.1k
• Asset value: €11.79k
• Total gains: €5.69k
• Percentage return: +93.3%

Lump sum approach

• Total investment amount: €6.1k
• Asset value: €60.3k
• Total gains: €54.2k
• Percentage return: +888.7%

Ripple (XRP)

Cost-averaging strategy

• Total investment amount: €6.1k
• Asset value: €28.78k
• Total gains: €22.68k
• Percentage return: +371.84%

Lump sum approach

• Total investment amount: €6.1k
• Asset value: €63.13k
• Total gains: €57.03k
• Percentage return: +934.9%

Bottom line: Although both approaches yielded strong returns in this scenario, investing a lump sum outperformed the cost-averaging strategy as long-term holders were able to weather the storm. However, cost averaging still provided substantial gains and helped reduce exposure to short-term market swings, highlighting its appeal for those seeking a more measured entry into the market.

Terra-Luna collapse

The collapse of the Terra/LUNA ecosystem in May 2022 saw the algorithmic stablecoin UST lose its peg and wipe out tens of billions in market value. The event sent shockwaves across the crypto industry. By June 19, 2022, investor confidence was severely shaken. The Crypto Fear & Greed Index fell to 6/100, one of its lowest scores ever recorded, demonstrating the apprehension among retail and institutional investors alike.

• Date: June 19, 2022
• Fear & Greed Index: Extreme Fear (6/100)
• BTC Price: €19,593
• ETH Price: €1,074
• Ripple Price: €0.31

Bitcoin (BTC)

Cost-averaging strategy

• Total investment amount: €3.4k
• Asset value: €8.39k
• Total gains: €4.99k
• Percentage return: +146.68%

Lump sum approach

• Total investment amount: €3.4k
• Asset value: €14.78k
• Total gains: €11.38k
• Percentage return: +334.6%

Ethereum (ETH)

Cost-averaging strategy

• Total investment amount: €3.4k
• Asset value: €3.35k
• Total gains: €-51.87
• Percentage return: -1.53%

Lump sum approach

• Total investment amount: €3.4k
• Asset value: €6.59k
• Total gains: €3.19k
• Percentage return: +93.84%

Ripple (XRP)

Cost-averaging strategy

• Total investment amount: €3.4k
• Asset value: €14.65k
• Total gains: €11.25k
• Percentage return: +330.8%

Lump sum approach

• Total investment amount: €3.4k
• Asset value: €25.11k
• Total gains: €21.71k
• Percentage return: +638.49%

Bottom Line: The fallout from this collapse triggered one of the most extreme fear events in recent crypto history, and for those who invested during the downturn, the long-term outcomes varied. Lump sum investments significantly outperformed cost-averaging strategies across Bitcoin, Ethereum, and Ripple. Most notably, Ethereum’s cost-averaging strategy resulted in a small loss, underlining that this approach does not guarantee positive returns.

FTX Crash

In November 2022, the crypto market was rocked by the swift collapse of FTX, one of the world’s largest and most prominent cryptocurrency exchanges. Rumours of insolvency quickly escalated into an outright crisis when it was revealed that customer funds were misused, triggering a liquidity crunch and widespread panic.

The fallout was severe, as billions were wiped from the market in a matter of days. On November 12, 2022, the Crypto Fear & Greed Index registered 20/100, reflecting Extreme Fear as investors scurried to withdraw funds and avoid risk exposure.

• Date: November 12, 2022
• Fear & Greed Index: Extreme Fear (20/100)
• BTC Price: €19,739
• ETH Price: €1,334
• Ripple Price: €0.5

Bitcoin (BTC)

Cost-averaging strategy

• Total investment amount: €3k
• Asset value: €7.01k
• Total gains: €4.01k
• Percentage return: +133.74%

Lump sum approach

• Total investment amount: €3k
• Asset value: €13.03k
• Total gains: €10.03k
• Percentage return: +334.4%

Ethereum (ETH)

Cost-averaging strategy

• Total investment amount: €3k
• Asset value: €2.8k
• Total gains: €-196.23
• Percentage return: -6.54%

Lump sum approach

• Total investment amount: €3k
• Asset value: €4.5k
• Total gains: €1.5k
• Percentage return: +50%

Ripple (XRP)

Cost-averaging strategy

• Total investment amount: €3k
• Asset value: €11.76k
• Total gains: €8.76k
• Percentage return: +292.12%

Lump sum approach

• Total investment amount: €3k
• Asset value: €13.43k
• Total gains: €10.43k
• Percentage return: +347.52%

Bottom line: The FTX collapse was another defining moment of extreme fear in the crypto world, and once again, those who invested during the downturn saw varied results. Lump sum investments outperformed cost-averaging strategies across all three assets, with especially strong gains for Ripple and Bitcoin. Conversely, Ethereum’s cost-averaging strategy resulted in a modest loss. This underlines the idea that while buying during fear can lead to opportunity, it doesn’t always translate into success. It’s important to remember that outcomes depend not only on timing but also on how individual assets recover.

Tips to prepare for volatility

• Get your money ready: You never know when the next opportunity will arise. Don’t be left flat-footed; make sure you have enough capital set aside to make the most of any chances that volatile market conditions may send your way.
• Be flexible: The adaptable traders who can configure their strategies in response to the changing market environment will most likely succeed.
• Plan your strategy: Conduct thorough research of the market and use risk management techniques to help navigate periods of turbulence and protect your position during unpredictable swings.
• Stay calm and measured: Avoid impulsive decisions or simply relying on your gut instinct. Research, make a plan, and try to stick to it. Adapting to situations through measured responses is better than knee-jerk reactions.

Conclusion

Overall, cost averaging can be an effective strategy for navigating volatile crypto market fluctuations, helping to mitigate the risk of timing the market while providing consistent exposure to an asset.

In our scenarios, we’ve also seen that during moments of extreme fear, a lump sum investment (though riskier) has historically outperformed in certain cases. This was especially true for assets like Bitcoin and Ripple, where prices rebounded significantly after major downturns. However, not all outcomes were equal. In the case of Ethereum, the cost-averaging strategy resulted in a loss in two of the three scenarios, reminding us that no approach is perfect and can be affected by extended declines or uneven recoveries.

On the whole, though volatility may feel like the enemy, it can create the ideal environment for long-term opportunities when you’ve done your research and prepared. Ultimately, outlining your goals, managing risk, and staying disciplined are your most valuable assets in these times of fear.

Whether you’re new to investing or looking to refine your existing strategy, cost averaging could be one way to build your portfolio with greater consistency and long-term growth.

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Disclaimer
This article is distributed for informational purposes, and it is not to be construed as an offer or recommendation. It does not constitute and cannot replace investment advice.
Bitpanda does not make any representations or warranties as to the accuracy and completeness of any information contained herein.
Investing carries risks. You could lose all the money you invest.