Some Cryptocurrency Risk Management Strategies
You can comfortably invest and possibly achieve your investment goals by investing at a risk level that is coherent with your risk tolerance. Assessment of your risk tolerance can be carried out by weighing important measures like your investment goals, the amount of time in which you expect to achieve your goals, and your demand for liquidity, etc.
If you employ some cryptocurrency risk management strategies discussed in this article, you can be able to enhance your risk tolerance, especially if you set long- or longer-term goals, increase your savings by diversifying your investment portfolio both online and offline and reducing or eradicating your need to liquidate your assets.
Applying crypto risk management strategies is easier said than done, especially when it’s not so easy to foretell whether you’re going to be hit with financial challenges after you make crypto investments. The following are three crypto risk management strategies you can employ when making crypto investments:
1. Build your savings to an appreciable or sufficient extent
It’s very important to always save or keep some money aside from each earning you make, especially during the good times, so that if unexpected or unfortunate situations arise and you get hit by a few storms, you would still have an appreciable or sufficient amount of money in your savings to take care of damages, and even sustain yourself for a while before you recuperate.
Regardless of what you’re investing in or the strategy you want to employ, it’s important to build your savings to an appreciable or sufficient extent that can provide you with a stronger foundation to overcome financially challenging times that may arise if your crypto investments don’t yield the profits or gains you expect.
2. Diversify your investments inside and outside your cryptocurrency portfolio
In many areas of life, it’s advisable “not to put all your eggs in one basket”; the same applies to cryptocurrency where you can diversify your investment portfolio both inside and outside of it.
You can diversify your investments inside your crypto portfolio by adding more crypto assets to your crypto portfolio and investing in multiple crypto assets; in so doing, you can be able to spread out the total risk and reduce or eliminate the negative impact of great losses if one or few crypto assets experience a drop in price or value.
Although Bitcoin is the greatest of all cryptocurrencies, and almost everybody is trying to get their own share of it, newer and better-performing cryptocurrencies have been finding their way into the market and offering great opportunities.
For instance, Ethereum provides a foundation for future applications; NEO is another cryptocurrency that is generally considered a good long-term investment along with Ethereum because their value keeps on rising as more applications are created on their blockchain.
Cryptocurrencies such as Dash, Zcash, and Monero are transactional cryptocurrencies that are heavily focused on ensuring anonymity and transaction security.
On the other hand, you can diversify your investments outside of your crypto portfolio by investing in different assets such as bonds, stocks, exchange-traded funds (ETFs), or precious metals.
3. Be patient
One of the main reasons why many investors or traders incur losses after investing is because of their impatience which is a product of their fantasy to “get rich quick”. Many patient people who invest in cryptocurrencies on a long-term basis usually make money; in fact, most of them make lots of money because of the degree of their patience which is usually high.
Never forget that early Bitcoin investors waited on a long-term basis—for several years—before they saw returns, especially substantial and great returns! You can reap great dividends if you’re patient enough and watch how the mechanics of the crypto market plays out on a long-term basis.
In the field of investment (forex, equities, cryptocurrencies, bonds, stocks, etc.), patience is a profitable virtue that helps traders and speculators cover up a lot of ground. Patience will take you through rough patches in the market and, sooner or later, help you arrive at new opportunities that could spring up from anywhere or even nowhere.
In 2008, almost all the markets in the world, including the U.S. stock market, fell off the cliff because of economic issues such as the mortgage crisis. Many investors were afraid and became impatient, and started getting out of their investments while incurring massive losses.
If the investors had a lot of patience, they would have lived to see their investments make positive or great gains after six years, and in 2021, they would more than doubled the returns on the same initial investments they had made several years into the past.