Introduction
When we talk about Cryptocurrency investment, we are talking about volatility. We are talking about high risk/high return. If you are in the investment market, you will know that there are no other assets as lawless as Cryptocurrencies and still yielding high return.
As this year’s exuberant price rally of Bitcoin, people see a new hedge alternative against inflation. According to the reports, after the price drop in the pandemic, Bitcoin has bounced back by 600%. Though Bitcoin is becoming more of a norm in the investment market, investors are still finding it hard to get a solid ground for regulation.
Seeing how Bitcoin has performed in November 2020, new investors show their interest in the Cryptocurrency trade. The hype is so high that investors with minimal marketing knowledge are jumping into the race. Everybody wants to get rich overnight. Everybody wants to earn a high profit in a short time. This leads to new investors making mistakes.
In this post, we will talk about the best ways to mitigate risks while trading in Cryptocurrencies.
How Can You Minimize Risks While Trading In Cryptocurrencies?
Crypto trading platform is a volatile market where even the veterans have tasted dust. If you are cautious enough and take the necessary measures to mitigate the risk, you can calmly handle every trade.
Here are some of how you can reduce the risk while trading in Cryptocurrencies.
Diversifying Your Investment
The best practice that can save you from accruing a hefty loss or losing all your capital investment is diversifying your portfolio. The Cryptocurrency trade market is highly volatile. You may never know what the future of the assets holds. One moment it can reach its maximum price of the day, the other moment it can reach the ground bottom.
To save your investment from falling victim to reaching zero, diversify the investment into several assets. If an asset fails to perform, the other asset will negate the loss you accrue.
Follow The Market Trend
Cryptocurrency market flow on trend’s wave. Whichever currency is performing better, investors and traders like to go for that currency. Hence, instead of going for the Cryptocurrencies you like, read the market and see which Cryptocurrency holds the most potential to reach the moon. Going with the currency that you believe will perform in the future instead of going with the flow market can cost all your investment.
Hedging
Despite how fast the market is moving, the Cryptocurrency market is still unstable and inexperienced. As it is a new market, it is highly sensitive to even small changes.
We have seen people using Cryptocurrencies as a hedge against inflation. Well, to some extent, it can be considered, but being a new market and unstable to that, it will be a foolish decision to do so. If you are looking for a hedging instrument, it is better that you look for traditional assets like Gold, share, Bonds, etc.
Avoid Low Liquidity Cryptocurrencies
It is very important that you are aware of the liquidity factor of the assets you are investing in. There is no point in investing in assets that are hard to sell. The Crypto trade market is highly volatile. Every asset sees price drops and price hikes, depending on the trade market. Hence, it is essential to have to keep track of the market fluctuation.
In the early days, there were no such platforms where you could have shown the market performance. Fortunately, today we have software like Bitcoin Supreme that gives real-time data on the market fluctuations.
Secure Your Keys
If you are a Crypto trader, then you are always at potential risk of being hacked. The decentralized nature of Cryptocurrencies is a perfect hunting ground for hackers. Due to the decentralized nature, you can’t even claim your loss. The Crypto trade market is filled with fraudulent activity. If you are not careful enough, you might become the next victim of the hackers. Upon setting up your crypto wallet, you will also be provided with a recovery phrase that would help you recover your wallet in the event that it gets hacked. Make sure you keep your recovery phrase secured as you will only see this once (when you create your wallet) and you can’t request for it or a new one if you lose it.
History has witnessed several Crypto based fraudulent activities, and most of the victims were the people who were casual about their Crypto asset security.
The Bottom Line
If you can take the following measure that we have mentioned above, you will be able to restrict yourself from making mistakes that could cost your whole capital investment. Was this article helpful? Were you able to learn something from it? Do let us know.