Risk management is perhaps one of the most important aspects of investing in cryptocurrencies or any other asset class. Every investment, no matter how sure-shot it may seem, has a chance of going south, causing you significant financial harm.
However, if you are prepared for such incidents from the get-go, you can minimize their impact on your economic well-being. With this in mind, let’s look at a few risk management measures to help you tide over the choppy waters of the cryptoverse.
Only invest as much as you can afford to lose completely
Cryptocurrencies are highly volatile. Therefore, you should avoid investing large chunks of money into these assets. Instead, start with smaller amounts and keep investing portions of your disposable income. This way, you do not lose big time if the crypto market crashes or a project goes under.
Avoid making emotional decisions
FOMO and FUD can drive investors into making poor investment decisions. Therefore, instead of giving into these emotions, it is better to base your investments on deep research. Go through the project’s whitepaper and understand the problems it is looking to solve.
Find out about the project’s fundamentals, including its founders, tokenomics, the technology behind the token, the roadmap of the project, etc. This will give you a good idea of whether the project is worth investing in or not. You can also look into technical indicators such as traded volume, chart patterns, candlesticks, moving averages, etc., to gauge the future price movements of the asset.
Secure your crypto ecosystem
It’s not just market corrections that you need to fear when it comes to cryptocurrencies. Losses can also come in the form of scammers and hackers. Therefore, it makes sense to opt for a secure crypto exchange. Look for one with a good track record and insurance cover for its custody services.
However, even if it does offer insurance coverage, try not to leave coins on an exchange when not actively trading/investing. Storing them in an offline wallet is a much safer option. Also, make sure you are well-versed with the latest crypto scams; this allows you to avoid any that are targeted toward you.
Diversify
This tip stands true for almost every asset class; you must spread the investment risks across many different coins and tokens. This way, if one project goes under, you still have your toes dipped in others that can help you recover your losses over time. Moreover, one of the many coins you have invested in may shoot for the moon, and you would have missed the opportunity had you not diversified your investments.
Have an exit strategy
Having an exit strategy is essential. It ensures that you have a systematic way to deal with the situation when things go south. Some investors hold on to an asset hoping it will rise again. However, that day may never come, and they are just left holding the bag.
Therefore, just as you ascertain the right time to invest in a cryptocurrency, you should also decide on the opposite as well. This is called an exit amount, a figure that can serve as a concrete benchmark for stopping a dire loss. At this point, you can consider pulling out of an asset and redirecting those funds elsewhere.
