Crypto Trading: Risk On vs. Risk Off
Crypto Trading: Risk On vs. Risk Off

Crypto Trading: Risk On vs. Risk Off

By Thuy Dung - 8 Jun 2023

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In the world of finance and investments, the terms “Risk On” and “Risk Off” are often used to describe the general sentiment or attitude of investors towards the market. These terms can also be applied to the rapidly growing cryptocurrency market. Understanding the meaning of Risk On and Risk Off and their implications in crypto trading can help traders make better decisions and manage their risks more effectively.

Understanding the concepts of Risk On and Risk Off is crucial for traders in the cryptocurrency market, including those trading KuCoin Shares (KCS) or monitoring KCS price. These terms describe the general sentiment or attitude of investors towards the market, and can greatly influence the price movements of various cryptocurrencies.

What Does Risk-on Mean?

Risk-on is the term used to describe a situation that has a positive effect on the financial markets. When it comes to crypto trading, risk-on refers to a situation in which the price of assets, such as stocks and bonds, goes up, which means people are willing to take on more risk. 

There may be a few situations that have an effect on the financial markets as a whole—such as the U.S. Federal Reserve increasing interest rates or investors becoming fearful of an impending recession—which could cause the prices of assets to decrease. But large-scale fluctuations in stock prices are usually caused by small changes in investor sentiment. Risk-seeking is when investors put more money into their investments and risk-off is when they pull out of risky investments.

What Does Risk-off Mean?

The term risk-off, also known as flight to quality, is used in financial markets to describe a situation when investors are more risk averse and prefer to avoid riskier assets such as stocks and commodities. In other words, they prefer safer investments such as government bonds or gold over volatile investments like equities.

Whenever there is an increase in risk aversion among investors, they tend to reduce their exposure to higher risk investments and increase their exposure to lower risk ones. When this happens, the demand for risky assets falls while the demand for safe ones rises. This results in a fall in the value of risky assets such as stocks and a rise in the value of safe ones such as bonds.

What Are Typical “Risk off” Assets?

Government Bonds

Government bonds are considered a safe investment, and they can be a good way to diversify your portfolio. They’re also low risk–the most likely scenario is that you’ll get back what you put in at maturity. This makes government bonds a great option for investors looking for stability in their investments.

Treasury Bonds

Treasury Bonds are government bonds issued by the U.S. Treasury. They’re considered safe investments because they are backed by the full faith and credit of the U.S. government, which has never defaulted on its debt obligations (the only other country to do this is Australia). 

Certificates of Deposit (CDs)

Certificates of Deposit (CDs) are a type of savings account that has a fixed interest rate for a set period of time. CDs can be used to save money for short-term goals, like buying a car or paying off credit card debt.

Money Market Funds

Money market funds are low-risk, low-yield investment vehicles that are typically used by investors to park short-term assets. They have a fixed maturity date and unlike traditional mutual funds, they do not invest in stocks or other securities. Instead, money market funds invest in high-quality debt securities such as Treasury bills and commercial paper issued by large corporations.


Gold is a hedge against inflation and currency devaluation, but it also acts as a safe haven in times of uncertainty. It has been used as a store of value for thousands of years and is considered one of the most stable stores of wealth, which makes it ideal for those looking to park their money somewhere safe while they wait out turbulent markets.. 

Utility Stocks

Utility stocks are stocks in companies that provide a necessary service such as electricity, water and gas. These companies tend to be less volatile than other stocks because people need electricity to live. For example, if there were no utilities then all electronic devices would stop working and society would stop functioning as we know it.

Examples of Risk On assets

Stocks: Equities are considered risk-on assets as they generally offer higher potential returns but also come with higher volatility and risk[^2^].

Commodities: Investments in commodities like oil, gold, and other natural resources can be risk-on assets due to their price fluctuations and potential for high returns[^3^].

High-yield bonds: Bonds with higher interest rates and lower credit ratings are considered risk-on assets, as they offer higher returns but carry a higher risk of default[^4^].

Cryptocurrencies: Digital currencies like Bitcoin and Ethereum are also considered risk-on assets, given their high volatility and potential for significant gains.

Is Bitcoin Risk-on or Risk-off?

The answer to this question is a bit complicated. Bitcoin is both risk-on and risk-off, depending on how you look at it.

On one hand, Bitcoin represents a store of value that has been around for almost ten years now. It’s known as an alternative to fiat currency and can be used as such anywhere in the world without being affected by any government or central bank policies (unlike traditional currencies).

The classification of Bitcoin as a risk-on or risk-off asset is still a topic of debate among experts. Some argue that Bitcoin exhibits characteristics of both risk-on and risk-off assets, making it difficult to categorize. Bitcoin (BTC) price and charts can display high volatility, which is typically associated with risk-on assets. However, Bitcoin has also been considered as a digital alternative to gold and a potential hedge against traditional market risks, which would classify it as a risk-off asset.

Is Risk-On Risk-Off A Good Indicator of Market Sentiment?

As you can see, risk-on and risk-off indicators are a great way to make better trades. They’re an effective way of identifying the overall sentiment in the market, so that you can be sure that you’re getting in at the right time.

If you want to start using these tools in your own crypto trading strategy, here are some tips:

  • Use them consistently over time to get a feel for how they work together and what their patterns are like. You’ll be able to spot trends more easily after doing this consistently over several weeks or months.
  • Pay attention when there’s news about regulation or other issues affecting cryptocurrencies (or any other financial instrument). These events can influence whether traders feel like taking risks during certain times of day–and if they do decide not to take any chances then it will affect how much money is being traded worldwide.

The Risk-On vs. Risk-Off Approach to Market Sentiment

The terms risk-on and risk-off are used to describe the sentiment of the market. When investors are feeling confident, they’re willing to take on more risk. This is known as a “risk-on” environment. In contrast, when investors are nervous and want less risk–and perhaps even an opportunity to sell at a higher price–they’ll flock toward safe investments like government bonds or gold bullion (hence the term “risk off”).

In general terms, we can say that when we’re in a bull market (a period of rising prices), then we’re usually experiencing a “risk-on” environment; whereas if we’re seeing bear markets (periods where prices decline), then you’ll likely find yourself under pressure from your portfolio manager who wants you out with his/her mantra: “Sell everything!”


The risk-on vs. risk-off approach is a helpful way to understand market sentiment, but it’s important to keep in mind that the market doesn’t always react as expected. The best way to use this indicator is by looking at its historical performance and using it as a guide for future decisions rather than relying on it as an exact predictor of future events.

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