Cryptocurrency investment has been one of the most controversial pieces of financial advice in recent years. That’s due to the lack of knowledge and proper strategizing, as people considered cryptocurrencies an easy investment.
However, after the Bitcoin and Ethereum’s release, which became the most important coins, the market became more volatile than ever and considerably affected investors.
The current Ethereum price has been noticeably influenced by volatility, while Bitcoin was affected by the mainstream media.
Cryptocurrencies are always unstable because markets are highly speculative, and they have no regulatory framework. At the same time, their value is determined by investors’ sentiment, which can easily change due to economic and social events.
For example, market uncertainty has increased during the pandemic, and prices fluctuated considerably. At the same time, more people started to invest as a way to make side income to support their financial efforts.
Regardless of the risks cryptocurrencies are exposed to, they’re great investments, but you must know how to avoid specific threats.
Know your possibilities
As a rule of thumb, when starting to invest, it’s best to put in money that you don’t need to meet your basic necessities.
That means making a simple plan to pay all your bills, taxes and your daily expenses and see if you’re left with a certain amount of money that you don’t need. Any sum is important ―you don’t need to invest considerable amounts of cash to get something out of your assets.
It’s also best to have some savings in your emergency account worth six months of your regular expenses, but that also builds in time.
Regardless, never invest all your money in crypto, thinking that this could provide you even more money because the market is highly volatile. If you’re not careful enough, you might find yourself left with no money.
Whether you’re a beginner or intermediate, you might get in a slump when investing in crypto. That’s normal, and you don’t need to panic because building a sustainable portfolio takes time.
So, you can take the shortcut and copy the crypto investments of some experienced traders. But you need to be careful doing this because choosing someone reliable is challenging.
Always keep in mind important aspects of a crypto trader when following their path, such as their track record, the number of followers and the degree of risk you’re exposed to when choosing their approach.
A good thing about this method is that you don’t have to do it manually. You only have to link your account to the expert’s account, and the transactions will be made automatically through that system. So now you’ll purchase and sell your assets exactly like your crypto experts without moving a finger.
Choose what to invest into
You have plenty of assets to invest in as a crypto trader, but you must choose them carefully to avoid risk and build a stable portfolio.
Therefore, here are some great options you may consider:
- Companies with crypto holdings. This method allows you to build a bridge between your portfolio and crypto volatility because the risk of your assets depends on how much crypto the business provides on its balance sheet;
- Index funds. Index funds are various portfolios of stocks created to resemble the composition of an index. As you hold them longer, they perform better and protect you from market volatility;
- Crypto platforms. Staking money on cryptocurrency infrastructure is also an excellent method. You only have to choose companies that are engaged in crypto activities, such as mining firms and trading platforms;
- Stablecoins. These cryptocurrencies are linked by a stable asset, such as a financial instrument or currency, to maintain a balanced portfolio. They’re a good source of income and an excellent store of value even though they don’t provide considerable returns;
Hedging is a common approach that allows you to use a primary trade in the direction you expect the market to go and a secondary trade in the opposite direction. This way, regardless of what happens to the asset’s value (increases or decreases), you’ll be saved from losing money.
There are two ways in which you can hedge. First, you can go long in the futures market and purchase a coin at the current day’s price at a certain date if you think its value will increase.
At the same time, going short means you sell cryptocurrency at its current price but at another specific point in the future if you anticipate its value will decrease. Hedging gives you the opportunity to make profits while mitigating risk and volatility.
Evaluate the market
The final crypto investing strategy is always to watch the market. No matter what’s your motivator when choosing to invest in cryptocurrency, you must know that the market can be altered by almost anything.
If you’re not careful about moving your investments, selling them or withdrawing your money, you’ll lose anything that you’ve gained.
The least you can do is watch the news on this topic, but you can also enter forums and groups where cryptocurrency is discussed so that you’ll never be caught by surprise.
Two helpful terms will help you identify more significant risks. What investors call the bull market happens when the prices rise rapidly, meaning you need to buy and sell assets before reaching their peak. On the other hand, during a bear market, the costs decline significantly, which is the perfect time to buy assets.
Although these two events don’t occur at a specific time and cannot be delimited perfectly, they can be identified as a good time for you to make the best financial decision. Therefore, always be wary of what happens within the cryptocurrency ecosystem to avoid risks.
With the right mindset and a lot of patience, you can mitigate risks and strengthen your market position. You don’t need complex strategies; it’s enough to invest the money you don’t necessarily need and be prudent with the market’s trends.
Finally, watch what other people are doing and try to adopt a strategy that applies to your personal financial situation.