By nature, the cryptocurrency market is hyper-volatile and may change drastically, thereby exposing your portfolio to risks such as investment loss. If you can recall the market price actions of Bitcoin in 2021, many investors profited from Bitcoin’s all-time high of USD $68,790 in November.
In January 2022, however, the prices dropped to USD$33,000 as the market would soon enter into a crypto winter later during the year, where prices remained low.
Such are the risks you can encounter when investing in the crypto markets. Learning how to insulate your portfolio for such exposures and remain afloat in the volatile market price tides is crucial. One approach to market investing is opening a crypto demo account at a reputable exchange.
It’ll give you a feel of the digital currency industry and what to expect during the market price swings.
If you’re new to the market or investing in crypto, you must learn how to reduce risks while capitalizing on market inefficiencies. Below are some tricks to consider or integrate into your investment plan.
- Research
Crypto projects have whitepapers with underlying information for investors and the market. So, read reviews and make informed decisions about investments to add to your portfolio. You’ll learn the ideology behind the assets and their goals in the digital currency landscape. Moreover, it’ll help you to align your investment goals, whether long-term or short-term.
Ensure you learn the risks involved in the market and develop a protective approach. Remember, the market is speculative, and other peoples’ research might not work for your investment goals or plan.
- Buffer Your Investment Money
Investment experts advocate for portfolio diversification in the crypto market. They also advise you to use at least 20% of your capital in the market. However, cryptocurrency projects are constantly evolving and may take time to gain high market capitalization.
Investing a small amount of capital can achieve more significant values in the long run. But you should only invest money you can afford to lose should the market experience volatility. On the same note, you shouldn’t use borrowed money to invest and expect more substantial returns. The market price swing can drain your investment account and leave you in the red.
- Look For Crypto Investing Companies
Cryptocurrency is slowly gaining traction in most investment firms. Some of these firms research and invest on your behalf should you choose to work with them. Such companies can help insulate your portfolio from market volatility due to the extensive research they conduct.
An excellent way to determine if a crypto investing company can trade or transact is by looking at its balance sheet. It will give details of their trading activities, holding in the financial markets, and the digital currency market. An established firm should have significant crypto holdings in its portfolio. If their crypto investment gains value, your firm holdings can earn at a minimum risk.
- Index Funds Options
Crypto index funds allow you to track the performance of several instruments in the digital currency market. They work similarly to index funds traded in the traditional financial sector as investors look for low-risk, long-term gains. In cryptocurrency, you can create a basket of tokens and coins and keep track of their performance in the volatile market.
The crucial consideration is the market capitalization of the cryptocurrencies and the price at the time of investment. The portfolio performance will determine your profits in the long run. It’s a risk mitigation strategy that you can deploy when investing in the cryptocurrency market.
- Use Hedging
Hedging is a tactic that allows investors to go long or short on cryptocurrency market action. It entails opening trades on both ends—primary and secondary positions—of the chart since you’re uncertain of the direction the market will take. If the market value goes as you predicted, you can close the other position and eliminate losses.
Therefore, it’s crucial to understand how hedging works in the futures markets and use it when investing in cryptocurrency. For instance, if you think crypto prices will rise, you can go long and book a future purchase date at the current market price. Conversely, you can sell your holdings at the current prices if you predict the market value will fall.
- Leverage Crypto Platforms
The cryptocurrency market relies on a heavily invested infrastructure to support the industry. The payment systems or transaction fulfillment depend on the efficiency of the infrastructure created by the developers. It creates a less risky income stream for investors who wish not to take development responsibilities in the digital currency market. For such a reason, companies are floating the idea for investors to contribute capital to aid in maintaining services in the market.
You can research companies already accepting investors for crypto projects and get involved early. Alternatively, you can buy space for mining pools or become a cloud miner for a blockchain. However, it’s crucial to understand this crypto investment sphere to avoid losing your portfolio.
- Emulate Experienced Traders
If you’re unfamiliar with crypto trading, you can emulate what experienced traders do when investing in the market. It’ll help you ride their trading strategy and reduce your portfolio’s exposure. But first, you must research and find a trader with a consistent track record of profiting from the market.
Get reviews from the crypto trading community and crypto-friendly platforms. Once you locate a suitable trading partner, integrate your investment strategies and monitor their performance through a demo account before going live. In addition, you must also consider your trading capital to avoid risking more than you can afford.
- Integrate Best Practices On Portfolio Security
Security is an integral part of investing in crypto that you cannot overlook. How you handle your seed keys and crypto storage— hot and cold wallets— matters. Hackers always look for loopholes to steal your investments and break you. So, exercising best security practices, such as avoiding shared or public networks when checking your portfolio balance, is critical. It eliminates the chances of hackers gaining access to your account.
Final Thoughts
There are many strategies to use to reduce risks in the cryptocurrency market. They all depend on which cryptocurrencies are in your portfolio and their market capitalization. Your long-term or short-term strategies also have varying risks to your portfolio. However, you must learn how volatile the crypto market can be before investing. Do your research and develop a suitable plan to safeguard your portfolio.
