At the global level, the size of the market for digital asset management is worth more than $3.7 billion every year. However, by 2028, this market is expected to reach a value of about $14 billion. That is equivalent to a repeating annual growth rate of more than 17%.
It is rare to find an industry that can quadruple in size in only 7 or 8 years. What is it about digital asset management that is attracting so much interest?
As technology continues to progress, managing the risks associated with digital assets is becoming more and more vital. So what can you do with your digital assets to diminish the chance of losing the value of your investment?
Read on to learn all about the most powerful tips that will help keep your digital assets safe!
Diversify Your Investments
Some of the most famous advice about managing risk is also the most effective. When it comes to digital assets, diversifying your investment is just as important as it is in the case of traditional assets. In fact, it may be even more important.
Many people are tempted to ignore this advice when it comes to digital assets. The kinds of investing behaviors that would seem shocking in the world of traditional investment are common in the world of cryptocurrency.
Many people found that their net worth multiplied many times over as cryptocurrency became more and more valuable. It was the people who had as much of their net worth in cryptocurrency as possible who benefited the most from its explosion in popularity.
These people began to give advice and set the culture of crypto investment. However, the investing behaviors of many of these people were to keep almost all of their net worth in a single cryptocurrency.
Of course, there is a spectrum of more and less diversified investments. Some people kept everything in a single cryptocurrency, while others invested in a variety of cryptocurrencies.
Some people added in other crypto assets like NFTs. However, from a traditional investing standpoint, none of this provided the kind of diversity necessary to provide safety.
Traditional Diversification
According to traditional investing wisdom, it is important to diversify your investment across different channels. If all of your investments are in cryptocurrency, then you are exposed to the risk that the whole cryptocurrency market will decrease in value.
That is exactly what has happened in recent months and years. It is now looking like the traditional investing advice applies as much to cryptocurrency as it does to traditional assets.
Make sure to spread your net worth among cryptocurrency and other assets as well. Try to avoid keeping your net worth in a single investment or single area of investment.
Adapt to Cultural Updates
One of the reasons that the cryptocurrency market has suffered in recent months and years is that it has lost some of its positive reputation. One of the largest crypto exchanges in the world went bankrupt in 2022. On top of that, this bankruptcy was the direct result of allegedly fraudulent behaviors.
As a result, many millions of people using this exchange lost money. Even beyond that, many people are now more skeptical about cryptocurrency.
When cryptocurrency was first invented, it was intended as a transaction tool. At this function, it performed well. However, it performed so well that demand for cryptocurrency went up.
As a result, people who bought coins to make transactions discovered that their net worth had gone up more than they expected. This led to a lot of excitement, so people started to use cryptocurrency to invest rather than to make transactions. This shifted the fundamental approach to cryptocurrency use.
For several years, the standard in the world of crypto was to view cryptocurrencies as digital assets to be invested in. However, some of the recent failures of cryptocurrency have eroded this position.
More and more people are skeptical of cryptocurrency as an investment. That also means that more and more people are returning to treating it as a tool for transactions.
On this front, cryptocurrency is doing amazingly well! Banks, other institutions, and even governments have started to accept cryptocurrency transactions.
Although the total demand for cryptocurrency is shrinking as people stop using it as an asset, there is more to the story. People are continuing to use cryptocurrency as a simple transaction tool. That protects them from risk in ways that using cryptocurrency as an investment does not.
Updating Cryptocurrency Models
This also has implications for digital asset risk management. Now that people are using cryptocurrency as a transaction tool again, we may expect steadier and slower growth.
People who have invested in crypto in the past should understand these cultural updates. Those who are longing for a return to huge booms in value may be disappointed. It is more important to track cryptocurrency as a powerful technology that can provide practical benefits.
Keep Track of Inflation Rates
When people treat cryptocurrency as an investment, it also functions as someone more as a commodity. That means that many people also use cryptocurrency as a hedge against inflation. This is not new, but traditionally, people used things like silver and gold to preserve value against the threat of inflation.
In the past, there was a strong connection between inflation rates and cryptocurrency demand. The higher inflation went up, the more people invested in cryptocurrency.
At least in the short term, this allowed people to maintain the value of their wealth even as the value of fiat currencies like the dollar went down. However, this trend led to the highest peak in cryptocurrency value as well as its most recent drop. As people stopped using cryptocurrency as an investment, they also started using it less as a hedge against inflation.
The Effects of Inflation
That means that the connection between inflation and cryptocurrency demand is weakening. In the past, some people could make successful crypto predictions based on the inflation rates.
To a certain extent, some connection between inflation and cryptocurrency may remain. But as people shift to using cryptocurrency as a tool rather than a commodity, this method of prediction may begin to fail. We may even find that the connection between inflation and cryptocurrency value reverses.
Instead of inflation leading to increasing demand for cryptocurrency, it might lead to decreasing demand. That is because inflation also acts as a general indicator of economic health. As the economy struggles, people may withdraw their investments from cryptocurrency as well as from more traditional investments.
It is important to track the relationship between inflation and cryptocurrency even as it changes. To protect your digital assets, you will need to know whether or not inflation is a good indicator of where crypto is going or not. Even if it still is today, you will want to keep track of whether or not it continues to be such an indicator in the future.
Manage Risk With Appropriate Keys
Risk management sometimes comes down to the appropriate use of technology. Some people try to self-custody their own private keys. However, that does not provide nearly the level of security that most people desire.
Many people feel that they can manage their private keys on their own. However, most people have never managed anything like that over the course of years and years. In the vast majority of cases, trying to self-custody private keys is like gambling on your untested ability to manage such a system over the course of your whole life.
Spread Your Digital Assets Across Multiple Wallets
When it comes to cryptocurrency, there is another way to diversify. Whatever your crypto assets consist of, it is a good idea to keep them in multiple wallets.
Many people are comfortable with leaving huge amounts of money in a bank account or other single place. However, such places have the infrastructure in place and decades of experience in protecting such assets. If you leave a lot of money in a bank account, it is almost certain that you will be able to access all of it at your leisure.
However, when you store huge quantities of assets on a single digital wallet, you are creating an incentive for people to find a way to breach or hack it. When you spread out your assets across many wallets, you decrease this incentive. Even if someone does breach one of your wallets, the rest of your assets will be safe in the others.
Use Different Crypto Risk Management Tools
Using multiple wallets is a great start. However, it may also be a good idea to use a combination of hot wallets and cold wallets.
In the vast majority of cases, you will not need to transfer large percentages of your crypto assets at a single time. As a result, it often makes sense to keep many or even most of your digital assets in cryptocurrency in cold wallets.
You can compare cold wallets to a savings account. It makes the assets inside somewhat less accessible. However, just as with a savings account, that can be a benefit rather than a problem.
Learn How to Manage Risk Behaviorally
When it comes to protecting crypto assets, the most important risk management is sometimes behavioral.
For example, you might want to think about everyone who has access to your cryptocurrency wallets. In such circumstances, it is best to apply a policy of necessity. Unless someone has a specific reason to need to be able to access your digital assets, it is best to limit access to those who do.
Especially given recent occurrences, you may also want to adjust your behavior to account for the lack of experience in the crypto world. In many ways, the world of cryptocurrency is like the old west. Things are still wild in some respects, and the appropriate laws are still being created.
Millions of people lost their investments with the recent crypto exchange that went bankrupt due to alleged fraud. When you are protecting your own assets, it is important to think about who you trust with them. Just because a company is large does not mean that it is safe.
If you manage crypto assets with the help of employees, you should also take care to make sure that your employees are trustworthy. For example, you might decide that it is wise to have every employee pass a background test.
You may also be able to manage risk by setting up policies that require multiple people to make a transfer. That eliminates the possibility of a single bad actor violating the trust placed in them.
Consider Hiring Professional Security Services
As technology advances, so do the techniques of cyber criminals. Cybercrime is becoming a bigger and bigger problem. To keep up with the latest developments in cybercrime, many people are turning to professional security services.
When you want to maximize your digital risk management, it may be profitable to turn to the professionals. They can help you set up the tools and behavioral policies that will help keep your assets safe.
You can also look at ratings and reviews for various professional digital asset risk management companies. This may help you decide whether or not such services might be the right choice for your circumstances.
Understand How to Manage the Risks of Digital Assets
In the past, digital assets were on the periphery, while traditional assets were at the forefront. However, as technology and trends continue to change, digital assets are becoming more and more important. Learning about how to manage the risks associated with digital assets is an essential part of future financial practices.
To learn more about how to manage cryptocurrency investing risks, reach out and get in touch with us here!
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