How To Lower Your Investment Risk In Cryptocurrency?

Anyone involved in the cryptocurrency world has experienced an investment loss. The market fluctuates very quickly, so it can be difficult to time perfectly, but this doesn’t mean you should stop investing in cryptocurrency altogether.   

Dive in to know how to play it safe.   

Recent Changes in Cryptocurrency   

These past few years, cryptocurrencies such as Ethereum (ETHUSD, 7.17%) and Bitcoin (BTCUSD, 2.96%) have become popular. As a result, they caught the attention of different giant companies and investors.    

Last 2021, the crypto market cap reached roughly $3 trillion. Such occurrence enabled many companies like Robinhood (HOOD, 0.93%) to spike crypto trading.   

With that in mind, the technology behind it provides the potential to improve an economy. Still, with the volatility associated with these assets, it is difficult to have a clear idea of how cryptocurrency can be beneficial.   

Whether Bitcoin will crash or not will greatly affect how people use it. If BTCUSD drops from 100$ to 0$, people’s losses are limited. However, if BTCUSD climbs over 200$, then factored in by many people who demand Bitcoin as a mode of payment, we could expect much higher prices for this cryptocurrency.  

Should you invest in cryptocurrency? It is not a clear-cut investment strategy because it can be risky, like other investments. Even successful investors have lost money. However, proper research, education, and risk management would profit.  

Lowering your investment risk in cryptocurrency   

A lot of people are getting involved in cryptocurrency these days, and more of them seem to be investing. Unfortunately, this way can lead to a high level of risk for those who have not studied the topic closely.    

One reason for this issue is that with all this initial investment, some people may mistakenly believe that they can make money by just holding on over time – but that is not how it works. You should know what you are doing before spending your hard-earned cash on something akin to gambling.    

Fret not because some tips from pro crypto traders can help you lower your investment risks.   

Have a good strategy in mind   

Many traders are jumping into the cryptocurrency bandwagon without having an idea of what they are doing or without a strategy to guide them. Eventually, the prices won’t be in your favor, and you will have to deal with high losses. Not a great deal if you are hoping to make some money!   

One helpful strategy is called dollar-cost averaging. It’s a simple yet effective strategy where you only spend a specific amount of money each day, week or month. It is not the same as putting all your money at once or in one big shot. When you dollar-cost average, you will be able to buy your desired cryptocurrency after a specific time.   

Understand the volatility   

The next thing to do is to really understand cryptocurrency’s volatility. Then, you need to think carefully about what impact the value of your cryptocurrency will have on your investment and how this will affect your ability to withdraw or transfer funds.   

You should learn all you can about the exchange you are using, its owners and its history. If it is based overseas, you need to ensure that they are licensed and adequately pushing out verified information with the appropriate licenses in their home country.   

Spy like a pro   

It is always easy to see what other people are doing because they reveal their trades on social media platforms such as Twitter or Instagram. This way allows you to learn how others make investments and take note of their portfolios.   

Before you buy a crypto asset, take note of the blockchain. Some coins or tokens are better than others. For example, invest in a platform that supports multiple cryptocurrencies instead of investing in one coin. It is always an excellent idea to ensure you utilize multiple coins because each one is dependent on real-world use cases.    

Besides, if you can choose from a wide range of coins, it becomes easier to lower your investment risk if one coin fails.   

Know what you’re investing in   

Before buying any crypto asset as an investment:  

  1. Make sure you know exactly what its purpose is.  
  1. Decide whether it is a means of payment or a store of value.  
  1. Examine the details about the company that created it. If it is not a private entity, then make sure that it is listed on public exchanges where other people are trading in their coins.   

Wrapping Up  

To avoid stress and lower your investment risks, allocate some of the money in your investment portfolio to crypto-assets. If possible, choose a few coins with a proven track record of delivering consistent growth.  

The shorter you hold onto your crypto-asset, the less likely you will have a significant loss. The other important thing you should do is diversify your portfolio by investing in multiple coins from different platforms. The more coins you have, the lower your investment risk.  

And more importantly, always remember to spot trends and try to be a bit patient about them before taking any action. 

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