Downside protection refers to strategies or financial instruments designed to limit potential losses on an investment. This concept involves employing mechanisms to mitigate the risk of adverse price movements in an asset or portfolio. Such mechanisms can include stop-loss orders, hedging strategies using derivatives, or investing in assets with inherently lower volatility. The objective is to safeguard capital during market downturns, preserving value while still allowing for participation in upward price movements.
Context
In the highly volatile digital asset markets, downside protection is a critical consideration for investors and institutions alike. News often discusses various methods employed by traders and fund managers to shield their crypto holdings from significant price drops. The development of new decentralized finance (DeFi) protocols offering structured products and insurance solutions for digital assets represents a growing area for enhancing downside protection within the crypto space.
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