Definition ∞ Risk asset rotation describes the strategic reallocation of investment capital between different categories of digital assets based on changing market conditions or risk appetite. This involves moving funds from higher-risk assets to lower-risk ones, or vice versa, to optimize portfolio performance. It reflects shifts in investor confidence and market outlook.
Context ∞ Observing risk asset rotation is crucial for understanding prevailing market trends and investor sentiment within the cryptocurrency space. During periods of economic uncertainty, capital often moves into stablecoins or less volatile assets, while during bullish phases, it flows into higher-beta cryptocurrencies. This activity provides insight into the collective market perception of risk.
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