If there’s something that holds people back from investing in cryptocurrency, it’s the amount of risk involved. The most obvious reason for this is that cryptocurrency prices keep on changing. And if the price plummets, you can end up making a huge loss or even losing your entire investment. But even besides the price, there are lots of other risks involved. For example, we saw people lose their life savings when FTX crushed.
That said, millions of people continue to join the cryptocurrency bandwagon, as blockchain and digital currency seem to be the future. If you are planning to join, you only need to be smart with your investment and manage the risks well. And today, we’ll look at various ways you can minimize the risks involved.
Conduct Thorough Research
Before you can stay ahead of the risks, you need to have a proper understanding of how everything works in the crypto industry. If you are new, start right from the underlying technology. Understand blockchain, the different technologies behind different cryptocurrencies, the factors that affect pricing, etc.
Once you settle on a specific cryptocurrency that you want to invest in, get into its details. For example, if it’s Bitcoin, go through the historical changes in the Bitcoin price. What caused these changes? When you equip yourself with such knowledge, you will be in a better position to deal with the various risks.
Diversify, Diversify, Diversify
This is probably the basic principle when it comes to managing risks in investments. Basically, it just involves putting your eggs in different baskets. While there are opportunities that can be very enticing or seem very ‘safe,’ avoid going all in at all cost. If something bad happens to that investment, you can easily end up in a bad financial situation.
The basic way to diversify in cryptocurrency is by having multiple cryptocurrencies. Ensure that you also explore different types of crypto assets, such as coins, tokens, and stablecoins. Besides reducing your risk, you will also put yourself in a better position to gain from the good fortune of another asset.
Ensure Your Assets are Secure
Just like everything else that involves money, there will always be a risk of loss or theft when it comes to crypto. There are lots of hackers out there who will try anything to get access to your assets. They can hack your device, bait you through phishing, or even breach the exchange you use. And if they do, it will be very hard, or even impossible, for you to recover the assets.
This means that you need to go the mile extra in securing your crypto. Start with things such as backing up and using 2FA, and you can also explore the use of cold storages. If you are doing what is often referred to as Hodling, the latter can prove to be a very good option. Just ensure that you don’t lose the device you’ve used to store your assets.
Focus on the Long Term
You may have heard of people who invested in crypto and got rich quick. However, avoid joining the space with that mentality. This is because you’ll definitely come across some enticing opportunities that offer quick huge returns. The problem is they will most probably be what are known as pump-and-dump scams.
As such, it would be wiser to come up with a strategy that will allow you to focus on making a profit over the long term. This will need you to ignore the quick changes in price that crypto is known for and avoid knee-jack reactions. Strategies such as dollar-cost averaging can help you with that.
Stay Informed and Vigilant
One thing about the crypto market is that it can be treacherous. Things can change overnight and lead to a project that you trusted collapsing. However, if you are a person that keeps your eye on the market news, you may be able to take action before other users. As such, ensure that you stay informed.