VaR is a floor on bad days, not a worst case
The number tells you the edge of ordinary losses, not how deep the rare ones go. Combine it with position discipline: cap each trade with the position size calculator and pressure-test survival on the risk of ruin calculator.
VaR: the loss you won't exceed 95% of the time
95% one-day VaR answers: what's the worst loss I'll have on a typical bad day? If your daily portfolio return standard deviation is 3%, 95% VaR โ 1.645 ร 3% = 4.9%. You'd expect to lose less than 4.9% on 95 of every 100 days. The other 5 days โ the tail โ can be worse, sometimes much worse.
BTC's historical daily volatility runs 3โ6% in normal conditions, 8โ15% during crisis months. At 4% daily vol, 99% VaR (the really bad days) is 2.33 ร 4% = 9.3%. One day per 100 you'd expect to lose more than 9.3% โ which in 2022 happened multiple times in a month.
VaR underestimates tail risk. It says nothing about how bad the worst 5% of days are. Conditional VaR (CVaR) or Expected Shortfall averages those tail losses. For leveraged crypto positions, CVaR is more honest โ the 5% bad days tend to be correlated and clustered during market stress.
Related: Sharpe ratio, max drawdown, position sizing from risk.