As late as 2017, you could still buy a whole Bitcoin for only about $1,000. Later on, that same Bitcoin would be worth over $63,000.
That is exactly the kind of astounding growth that has so many people willing to brave the risks of investing in cryptocurrencies. Although it has been a long time since Bitcoin had its meteoric rise, many coins in recent history have enjoyed similar increases in value.
At the same time, more and more people have lost money by investing in crypto. On top of that, although some of these losses were due to coins going down in value, many people lost money because of scams or even fraud by major crypto platforms. Fortunately, there is a lot that you can do to make investing in crypto as safe as possible for you.
Read on to learn all about the most powerful methods for mitigating financial risks when buying and selling crypto!
Diversify Your Investments
Many of the first people to become millionaires and even billionaires by investing in crypto succeeded by pouring all of their investment money into the cryptocurrency markets. Expert investors pointed out that this strategy flew in the face of all traditional investing advice.
In fact, many people made their fortunes by using the majority of their investment money to buy a single cryptocurrency. For a few years, some people argued that the time for diversifying investments was over.
However, as more and more people have lost money by using these strategies, it is clear that the traditional investment wisdom is as true as ever. When you invest in the cryptocurrency market, it is vital that you invest in a spread of coins if you want to decrease your financial risks.
Not only should you invest in a variety of coins, but you should also invest in a variety of types of coins. For example, Bitcoin uses a simple technology and only allows coin owners to perform simple transactions.
On the other hand, Ethereum is a more complicated crypto that allows people to create smart contracts. When you diversify your crypto investments, it is a good idea to include some simple currency designs as well as more complicated ones that experiment with new technology.
However, even spreading your investment money among many cryptocurrencies is not enough if you want to maximize your financial safety. Standard investment advice dictates that you diversify not only within the crypto market but also between different markets.
Many experts recommend that you have 10% or less of your investments in the cryptocurrency market. You can increase your safety by spreading the rest among stocks, bonds, real estate, and other investments.
Consider Copying Expert Strategies
For a long time, crypto enthusiasts had a culture in which almost everyone had their own investment strategy. Everyone’s investments were increasing in value, so everyone felt like they were doing things right.
However, it is now obvious that many people were only profiting from their investments because the entire cryptocurrency market was going up. In the vast majority of cases, investors do not know enough to outperform the investment strategies of the experts.
As a result, you might want to copy the crypto investments of experts. Many crypto experts publicize their own investment decisions and how they come to them. Unless you have good reason to think you can do better, copying the experts may be the best way to protect yourself as well as maximize your profits.
Protect Your Crypto Investments by Hedging
Hedging is a powerful strategy for decreasing investment risks. To apply this strategy, you will put your money in investments that will go up if your other investments go down in value.
For example, you can hold your wealth in both real estate and large quantities of currency. If inflation drives down the value of your currency, it will likely drive up the value of your real estate investments.
That way, whether inflation goes up or down, your financial risks will be minimized.
In the past, the inflation of the United States dollar seemed to correlate with increasing crypto prices. However, in the past year or so, this trend has reversed. For the time being, that means that you may be able to hedge your bets by investing in crypto and real estate at the same time.
If inflation goes up, you may lose money on your crypto investments while making some of it back on your real estate investments. If inflation goes down, you may not make as much on your real estate investments, but your crypto holdings have a good chance of increasing in value.
Hedging strategies have been one of the most powerful ways to manage investment risk for decades. This strategy applies as much to the world of crypto as it does to traditional investments.
Be Prepared to Update Your Security Protocols
Investing in crypto often requires that you have security protocols to protect your investments. After all, if someone gains access to your accounts, they can send your crypto holdings anywhere in the world. Because the world of crypto is not yet deeply regulated, there is often no authority that can help you reverse such transactions.
We will discuss strategies you can use to protect yourself from losing your crypto Holdings to bad actors. However, it is important that you be ready to change your cryptocurrency risk management strategy when the time comes.
As the world of crypto trading evolves, so do the vulnerabilities that investors experience. The crypto world changes fast, so if you do not adjust your security protocols, you might end up losing your money even if you invest in the right coins.
Avoid Unverified Platforms
In recent history, one of the largest crypto exchanges in the world went bankrupt. Although the case is still pending, many people believe that this bankruptcy was the result of fraud. Tens of millions of people trusted their investments to the FTX platform and lost almost everything.
There is no better example of how risky crypto investment can be. If even the largest platforms are engaging in alleged fraud, then it is vital that you do your due diligence before trusting any exchange or crypto platform.
Make a point of avoiding any crypto tools or exchanges that do not have a strong reputation for trustworthiness. You might even need to limit yourself to a few of the biggest platforms. However, keep in mind that even this is not a guarantee that your money will be safe.
Think Twice Before You Buy a New Coin
Some scammers create crypto coins in the hopes that excited investors will give them money that they can run away with. The less time a coin has been around, the higher the chance that it is a potential scam.
Many people lost money by investing in Squid Coin. People invested in this coin because it referenced a popular show.
However, the creators of the coin crashed it not long after creating it. If you are interested in investing in a new coin, make sure to research it first.
Keep Track of the Latest Scams
As people become familiar with specific crypto scams, they stop working. Scammers then invent new ways of tricking people out of their money.
Consider keeping up to date with the latest scams when people first start talking about them. That way, you will recognize them if a scammer attempts to target you.
Apply Password Protection Principles
Many people use weak passwords without even realizing it. If you have a weak password, then it is easier for scammers to brute force it and steal your investments.
Remember that the most important part of making a password secure is making it longer. Contrary to some people’s belief, you do not need to use complicated combinations of numbers and symbols.
The longer your password is, the harder it is for a brute-force program to guess it. You can often create an extremely secure password by chaining three or four words together in a phrase you will remember. That can protect your crypto investments better while also making your password easier for you to remember.
Enjoy Decreased Financial Risks When Investing in Crypto
In recent years, the financial risks of buying and selling crypto have become more and more obvious. However, there are a lot of strategies you can use to invest in the cryptocurrency market without exposing yourself to unnecessary risk. The more that you invest in lowering your investment risks, the better the chance that you will enjoy profitable crypto investments.
To learn more about how you can take your crypto risk management to the next level, reach out and get in touch with us here at any time!