Past performance is not indicative of future results. Brokerage services offered through FIN2, member FINRA/SIPC.

Most investors know that sinking feeling. You open your portfolio dashboard and see nothing but red candles. Even if temporary, watching balances drop can be dispiriting. 

However, volatility is not necessarily an indication that something has gone wrong. It is a fact of life in investment markets. 

An investor’s objective is not to avoid volatility at all cost. The objective is to understand it, manage it, and turn it into an advantage.

Defining Volatility

We all know the saying “no risk, no reward.” In investing, risk is often reflected in volatility, the degree to which an asset’s price moves up or down over time. If prices never moved, no one would make money. 

It’s important to recognize that volatility is not the same thing as permanent loss. It is simply fluctuation of prices, deviation from the mean value. 

In financial terms, volatility is measured as the standard deviation of returns. It is usually higher in growth-stage assets because of various factors, including sensitivity to market sentiment, liquidity conditions, and external shocks, all of which can cause sharp price swings. In crypto, this is felt acutely. BTC can drop 20% in a single day and rally just as much the next.

Volatility Is Your Friend, If You Let It Be

You can’t get outperformance without price movement. Some of the best long-term performing assets such as crypto, tech stocks, and emerging markets equities have also been among the most volatile.

In the table below, we show different assets’ volatility and returns (both absolute and risk-adjusted) over the past five years. Although each asset has its unique characteristics, in general, the higher the volatility, the higher the return.

Past performance is not indicative of future results. Brokerage services offered through FIN2, member FINRA/SIPC.

The scatter plot below underscores this relationship. Each point represents an asset class, with its annualized return on the vertical axis and annualized volatility on the horizontal axis. Assets clustered toward the right, such as BTC, exhibit significantly higher volatility, but also much higher historical returns. Assets to the left, such as U.S. Treasuries, have delivered steadier but lower performance.

Past performance is not indicative of future results. Brokerage services offered through FIN2, member FINRA/SIPC.

However, volatility alone is not enough to judge an investment. The Sharpe Ratio, shown in the table above on the right, measures how much return an asset has generated per unit of volatility. A higher Sharpe ratio means better risk-adjusted performance. While equities such as the ones in the S&P 500 have historically offered strong Sharpe ratios, BTC’s risk-adjusted profile remains competitive given its outsized absolute returns.

The takeaway is not to avoid volatile assets, but to understand their role in a portfolio. High volatility, when paired with a strong return profile and disciplined risk management, can be a source of long-term compounding rather than a threat. (If you want to learn more, you can read “The Impact and Opportunity of Bitcoin in a Portfolio” published by the Galaxy Asset Management team.)

When Volatility Is Concerning

Volatility can be harmful when the investment horizon is short and funds may be needed at any time, a situation often referred to as liquidity risk. A sudden drop in prices at the wrong moment, when capital must be withdrawn, can damage returns and remove the opportunity to recover principal. When investing across different assets, it is important to be clear about one’s tolerance for short-term volatility. Key factors to consider include

• Investment goals: whether the focus is on income, preservation, or growth

• Investment horizon: how long the capital can remain invested before it is needed

• Risk tolerance: the willingness and ability to endure price swings without selling

Once the risk profile is understood and aligned with objectives, the most important step is to stay the course during turbulent periods. The costliest mistakes in volatile markets tend to come from:

• Panic selling: crystallizing temporary losses into permanent ones

• Performance chasing: buying recent winners at inflated levels

• Emotional trading: reacting to headlines rather than fundamentals

Avoiding these pitfalls requires focusing on the long-term growth thesis rather than short-term price action.

Drawdowns

However, even with a well-thought-out plan, drawdowns can still happen, and they are often the most difficult test of conviction. In 2022, BTC fell more than 75% and took over a year to recover, while ETH declined more than 80% and (at the time of this writing) has yet to return to its prior peak. The table below shows the depth and duration of these and other major pullbacks across crypto and equities. Crypto’s large upside potential has historically been paired with steeper and, in some cases, longer declines than traditional equity markets. BTC’s recovery times have often been similar to those of major indices, but ETH’s slower rebound highlights the differences in risk profiles even within crypto.

Past performance is not indicative of future results. Brokerage services offered through FIN2, member FINRA/SIPC.

Understanding the trade-off between high-potential returns and large drawdowns is critical when pursuing higher-return opportunities. It is also why it is essential to understand liquidity needs before committing capital. When a large drawdown occurs, staying focused on long-term growth potential and the original investment objectives can help prevent short-term volatility from derailing the broader strategy.

The chart below shows that the probability of positive returns rises sharply as the holding period lengthens in risk assets. Over a three-year horizon, BTC, ETH, the S&P 500, and the Nasdaq 100 have historically posted gains in the majority of rolling periods. This reflects how volatility’s short-term swings tend to balance out over time, increasing the likelihood of gains for longer holding periods.

Past performance is not indicative of future results. Brokerage services offered through FIN2, member FINRA/SIPC.

How to Deal with Volatility

The key to navigating volatility is to build a structure that makes staying the course easier, even when the market feels unsteady.

• Portfolio Diversification: Balancing assets with different risk and return profiles reduces the portfolio’s sensitivity to any single market shock. The objective is not to predict which asset will outperform next, but to ensure that returns are not dependent on one outcome alone.

• Portfolio Sizing: Allocating a modest portion of the portfolio to highly volatile assets can limit their influence on total portfolio volatility and drawdowns. When combined with lower-volatility or less-correlated assets, the highly volatile asset’s impact can be meaningfully reduced, sometimes to well below its weight.

• Dollar-Cost Averaging (DCA): Timing the exact market bottom is a fool’s errand. DCA reduces the influence of short-term market swings by spreading entry points over time. Whether prices rise, fall, or move sideways, the average purchase price smooths out, removing the pressure to identify a single “perfect” moment to invest.

Read our article about “The Benefits of Dollar-Cost Averaging Into Bitcoin”

• Yield Buffering: Yield strategies can soften the impact of volatility. Income from lending, staking, or structured products can provide a steady stream of returns that partially offsets temporary drawdowns and supports portfolio stability during periods of heightened market movement.

GalaxyOne positions itself against the market noise and over-gamification of some fintech apps. We deliver a platform for multi-asset investing and advanced financial products for modern investors who expect more.

At launch we are focused on three key value promotions:

1. Deliver Galaxy’s institutional strength to individual investors

2. Competitive yield-generating strategies on your cash:  

   • GalaxyOne Cash, a high-yield cash account offering 4.00% Annual Percentage Yield (APY)* on cash deposits with FDIC insurance up to $250,000 and banking services provided by Cross River Bank, member FDIC.

   • U.S. accredited investors** are eligible for Galaxy Premium Yield, an investment note issued by Galaxy Digital LP offering 8.00% yield*** on cash with investments from $25,000 to up to $1 million per investor.

3. The ability to seamlessly auto-reinvest your earned monthly interest into bitcoin, or other crypto assets on platform, to make navigating volatility more manageable and dollar-cost-averaging easy.

This is just the beginning for GalaxyOne. In the coming months, we have a robust platform roadmap with the goal of delivering market-leading financial products and services for investors who are aiming to grow their wealth and investments in one intuitive platform, while navigating markets and taking advantage of opportunities.

Get started today: https://one.galaxy.app/sign-up 

* APY is effective as of 9/23/2025 and may change at any time before or after account opening.

 **An accredited investor, as defined by the U.S. Securities and Exchange Commission (SEC) under Rule 501 of Regulation D, includes an individual permitted to invest in certain private securities offerings not registered with the SEC. This status is based on income or net worth.

***APY is effective as of 9/23/2025 and can be changed upon 30-day prior notice for Galaxy Premium Yield. This is an investment product, not a bank deposit, and is not FDIC insured.

Disclosures:

Galaxy Premium Yield Investment Note to be offered and sold has not been registered under the Securities Act of 1933, as amended, or the securities laws of any state. Such notes may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from registration requirements. All investing involves risk, including the potential loss of principal. Past performance is no guarantee of future results. To obtain more information about and to consider investing in Galaxy Premium Yield, please see here.

This blog post shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Galaxy Premium Yield Investment Note in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

GalaxyOne Cash account deposits held at Cross River Bank, Member FDIC. Insured up to $250,000.

Digital assets are highly volatile, not legal tender, and not backed by any government. Investments in cryptoassets involve significant risk, including the potential loss of all principal. Digital assets available on GalaxyOne are held in custodial wallets with Paxos Trust Company, a New York State-chartered trust company regulated by the New York Department of Financial Services. These assets are not insured by the FDIC or SIPC.

Crypto trading on GalaxyOne may be subject to execution, network, or withdrawal fees, including applicable blockchain transaction ("gas") fees. While GalaxyOne does not charge spread markups, other costs may apply. Crypto transactions may trigger taxable events; please consult your tax advisor to understand your individual tax obligations.

GalaxyOne’s crypto services are offered in partnership with Paxos. By using these services, you agree to the GalaxyOne Digital Asset Customer Agreement and Risk Disclosure, available here.

GalaxyOne Brokerage accounts are introduced by FIN2, LLC and offered through FIN2, a registered broker-dealer and member FINRA/SIPC, with clearing and custody provided by DriveWealth LLC, member FINRA/SIPC. Securities products are not FDIC insured, not bank guaranteed, and may lose value. Commission-free trading refers to $0 commissions for self-directed individual cash brokerage accounts on U.S.-listed equities and ETFs. Other fees and charges (including regulatory fees, foreign transaction fees, and wire transfer fees) may apply. Fractional share trading is available for certain eligible securities; not all securities are available for fractional trading.

GalaxyOne Brokerage accounts and services are available only to U.S. persons who successfully complete KYC verification. All investing involves risk, including the potential loss of principal. You should carefully consider your investment objectives and risk tolerance before trading. Nothing herein should be construed as an offer, solicitation, or recommendation to buy or sell any security.