5 Important Tips For Managing Crypto Risk

By CNBCTV18.com IST (Released)

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Cryptocurrencies are very volatile. Therefore, you should avoid investing large sums of money in these assets. Instead, start with smaller amounts and continue to invest portions of your disposable income.

Risk management is perhaps one of the most important aspects of investing in cryptocurrencies or any other asset class. Every investment, no matter how safe it may seem, has a chance of going south, causing you significant financial harm.

However, if you are prepared for such incidents from the start, you can minimize their impact on your economic well-being. With that in mind, let’s look at some risk management measures to help you navigate the choppy waters of the cryptoverse.

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Invest only as much as you can afford to lose completely

Cryptocurrencies are very volatile. Therefore, you should avoid investing large sums of money in these assets. Instead, start with smaller amounts and continue to invest portions of your disposable income. This way, you don’t waste a lot of time if the crypto market crashes or a project fails.

Avoid making emotional decisions

FOMO and FUD can cause investors to make poor investment decisions. Therefore, instead of giving in to these emotions, it is better to base your investments on thorough research. Go through the project’s whitepaper and understand the problems it seeks to solve.

Learn about the fundamentals of the project, including its founders, tokenomics, technology behind the token, project roadmap, and more. This will give you a good idea of ​​whether the project is worth investing in or not. You can also view technical indicators such as traded volume, chart patterns, candlesticks, moving averages, etc., to gauge future price movements of the asset.

Secure your crypto ecosystem

It’s not just market corrections you have to worry about 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 coverage for their daycare services.

However, even if it offers insurance coverage, try not to leave coins on an exchange when you are not actively trading/investing. Storing them in an offline wallet is a much safer option. Also make sure you are familiar with the latest crypto scams; this allows you to avoid those intended for you.

To diversify

This tip is valid for almost all asset classes; you have to spread the investment risk over many different coins and tokens. That way, if one project fails, you still have your toes dipped in others who can help you recoup your losses over time. Moreover, one of the many coins you have invested in may be aiming for the moon, and you would have missed the opportunity if you did not diversify your investments.

Have an exit strategy

Having an exit strategy is essential. This ensures that you have a systematic way to deal with the situation when things go wrong. Some investors hold onto an asset hoping it will rise again. However, that day may never come and all they have to do is hold on to the bag.

Therefore, just as you determine the right time to invest in a cryptocurrency, you must also decide the opposite. This is called an exit amount, a figure that can be used as a concrete reference to stop a disastrous loss. At this point, you may consider withdrawing an asset and redirecting those funds elsewhere.

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5 Important Tips For Managing Crypto Risk


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