Does Volatility Affect the Choice between Hot and Cold Storage?
Yes, high volatility tends to increase the reliance on cold storage. When asset values are highly volatile, the financial loss from a hot wallet breach is magnified.
This encourages custodians and traders to move a larger percentage of their holdings into the more secure, albeit less accessible, cold storage to minimize the potential for catastrophic loss.
Glossar
Hot and Cold Storage
Strategy ⎊ Hot and cold storage represents a bifurcated asset management strategy designed to optimize the trade-off between accessibility and security for digital assets, particularly those used in derivatives trading.
Cold Storage
Storage ⎊ Cold Storage denotes the practice of securing private keys for cryptocurrency assets entirely offline, disconnected from any internet-enabled device, to provide the highest level of defense against remote hacking attempts.
Hot Wallet
Storage ⎊ A hot wallet is a cryptocurrency storage solution where the private keys are created, stored, and managed on a device or server connected to the internet.