So you are in. Crypto madness has possessed you. You can’t resist the temptation to hold some BTC or stake some ETH. That’s a good time to start thinking about how to minimize risks when investing in crypto.
We all know cryptocurrencies are volatile. Even quite an experienced trader can easily be wrong about the prices next week and even more so in a month.
For example, despite reaching an all-time high value of $69,000 in November 2021, Bitcoin fell to $32,000 in February 2022.
Some investors were terrified to an extent where they started seriously preparing for the upcoming crypto winter.
A few weeks later Bitcoin was already at $48,000. Crypto winter has been completely forgotten. Investors started discussing whether $100,000 would be a peak for BTC in 2022 or should we boldly aim at $200,000.
At the time of writing Bitcoin is priced at roughly $40,000. Nobody is talking about $100,000. For obvious reasons.
Volatility can easily scare off any novice investor.
But volatility isn’t the only thing you should worry about when entering the frightening and exciting world of crypto.
There is more. You can fall into a scam, invest in a ‘dead’ coin or even forget a key phrase and lose all the tokens in your wallet.
So it is quite natural to be concerned about whether making an investment in crypto is a sensible decision for your investment portfolio.
We’ve already covered the most popular mistakes of crypto investors. Here are a few tips for those who are curious about how you can minimize risks when investing in crypto.
Don’t invest all your money
Or it is better to say you should invest your buffer money only.
Because of volatility it must be evident to you that you cannot pour all your resources into crypto. That would be risky.
If you decide to invest in crypto the best way to minimize risks would be to use only your buffer money.
By buffer money we usually mean the money you don’t need to meet your basic needs. In other words, by buffer money we mean the money you can lose without regret.
So it would be stupid to invest all you have got in crypto.
Taking loans to invest in crypto assets is also strongly discouraged.
Start your crypto investing slowly
Most experts advise that you invest a small amount over a long period of time to get the best returns.
It is like trying the water with your foot. Start slowly, see what it gives to you.
You don’t have to invest a lot of money altogether.
Increase your investment as and when you have more resources to spare.
Diversify your investment
First of all, no more than 5% of all your investment should go to crypto. That’s a rule of thumb.
Some experts claim it might be time to start considering 10% or even 20%, given how huge Bitcoin has become lately.
But still 20% is not 50% or all of it, right?
Secondly, you have to diversify inside your crypto investment. Don’t put all you have got in Bitcoin only even though it might seem the only obvious choice.
One safe way to minimize your risks while investing in crypto is to avoid buying too much of newly born altcoins. While some of them may look promising, please remember how often these coins prove to be just ‘a king for a day’.
We are talking about an ideal crypto portfolio here. And according to many experts you should balance between well established coins like BTC and ETH with a little part of stablecoins like USDT to keep you fit.
This one is easy and kind of obvious. But many people still avoid this way to minimize your risks while investing in crypto.
This strategy simply means you copy the investments of a professional crypto investor.
There are lots of them on social networks and especially on YouTube.
Most of them give lots of advice for free trying, of course, to attract part of their audiences to the paid subscriptions.
But you first try how it works for you for free. All you have to do is just select a trader to follow. It is just as easy as picking a dentist. You have to read reviews, look at the number of followers etc.
Then you start to seamlessly copy trades on some crypto trading platforms, like Binance or Coinbase.
Some exchanges like eToro even allow you to link your account to the account of the trader and thus all the transactions will be carried out automatically.
It means that your account will automatically buy and sell the same assets the trader does. If you choose your trader wisely it might be a good way to minimize risks while investing in crypto.
Don’t imitate the crowd
Finally, we get to discuss the biggest mistake almost all the novice crypto investors make.
The idea that a particular token or coin is doing well at the moment and should be invested into might entice you.
You might even think that you are letting go of an opportunity to make some good profit. Look, everybody is talking about a specific token, everybody is buying it, maybe I should too?
This is an example of irrational thinking. Beginners often fall to this temptation and lose money.
For beginners, it’s important to not cave under pressure just because others are investing. That’s not the way to minimize your risks while investing in crypto.
Take time, do some research. Invest only if everything adds up. If you are not sure, avoid investing. Stick to a coin that might be less profitable, but more reliable.
Sources: NDTV, JumpStartMag