How to Manage Crypto Risk and Reward Profitably
How will you Invest $1m?
If you are given $1m to invest, what will you possibly invest it in?
Crypto assets, right?
Well, that is a good choice for obvious reasons. One of such reasons is that the industry has the potential to disrupt the global financial system.
But, what is the first factor you will need to consider before investing? Have you thought about that already?
Yes, it is the potential risk involved in investing in crypto assets. Just as the quotes state that ‘no pain, no gain’ is true in crypto business.
Before a farmer thinks of harvest he has to labor and wait for months, even years. This means his resources including labour, capital and time are at stake.
If the farm fails to produce as expected, the investment will be a loss. On the other hand if it produces, then he will reap a bounty harvest.
The same is applicable to a crypto investor. He has many things at stake, his money, the time and other things he has to invest in expectation of a good yield.
What if the outcome turns out to be negative? But, what if it turns out to be positive?
This is exactly what risk is all about. It is all about your readiness to sacrifice in expectation for an uncertain future return.
In this article, I shall be explaining the various forms of crypto risks. Also, how you can mitigate the risks in order to enjoy a profitable investment.
Understanding the forms of Crypto Risks
Cryptopreneurs such as crypto traders and crypto investors use a concept called risk to reward ratio. It is a ratio that helps one to measure how much return to expect if one is willing to lose a certain amount of capital.
For example, R/R=1/10.
This means that you will have a return of $10 for willing to lose $1 in investment.
It also means that for every $10 gain, you can lose $1 invested.
But, for a better understanding, I will break down the forms of risk in cryptocurrency.
- Volatility Risk
Volatility is a critical feature of some cryptocurrencies. It is a feature which makes the price of some crypto to fluctuate from time to time.
It can simply be said of the absence of price stability in the crypto market. For instance the price of BTC can be $50k currently, in 30 minutes time; it can decline by 10%, i.e. $45K.
It is so because the market price is controlled by demand and supply. How does it affect cryptopreneurs?
Due to the effect of volatility, your capital can decline and your profit can also increase depending on the market situation.
I will show you how to maximise and manage the volatility risk.
- Security Risk
Valuable things always face security challenges. Crypto assets are not excluded from security threats. But this kind of security threat is termed cybersecurity threats.
Since crypto assets are purely in digital form the threats are also in digital form or via the internet. There are scammers and hackers looking for measures to gain entrance into your crypto assets and steal them.
This is why crypto security practice is very important. It will help you to protect your crypto assets from hackers and scammers.
I will explain the measures in the next session.
- Timing Risk
This is another form of risk in the crypto business. Some people, who invest in crypto assets, don’t know the right time to invest and the right time to exit the investment.
Because of this problem, they tend to enter the market at the wrong time and exit the market at the wrong time.
With the right understanding of timing regarding when to buy and when to sell, you will end up not getting the best from investing in crypto.
How to Mitigate Crypto Risk
Haven explained the risks; I shall proceed to show you ways to mitigate the potential risks explained.
- Buying the Dip Strategy
This is one of the best strategies to maximize volatility. It is simply waiting to buy when the market dips and sell when the market marks an all time high.
But, how do you know when the market is in the dip? Psychologically, during the dip there is bad news around crypto flying around and the price of crypto is ridiculously low.
Technically, the RSI is below 30, showing a sign of bearish zone.
- Stop Loss and Take Profit Strategy
In order to minimize the risk of losing your capital in a bear market, you should learn how to use stop loss. The same is true when you want to maximize your profit in crypto, you should learn to take profit.
These two approaches are functions which are available in most exchanges. Trenndify Academy explains and demonstrates in this video how to use Stop loss and take profit on Binance.
- Exchange 2FA
Crypto exchanges are platforms where you buy and sell crypto assets. There are many cyber criminals that may want to have access to your account.
You access your account with a password and an email address. But to add a second layer of security, there is a 2 factor authentication security measure.
It is a code which only you have access to that enables you to access your account securely after entering your email and password.
Ensure you activate this in your exchange account.
- Crypto Wallet Security
There are two forms of keys used in crypto wallets. The public key is the address that you use to receive and send coins. It is called a public key because it should not be hidden and it is used to do transactions.
Then, we have a private key which is your code to access your wallet. It is called a private key because whoever owns the key owns the crypto assets.
Ensure you keep your private keys from third parties. It is advised that you save it in more than one place.
While the crypto business has risk, it is also a fact that it has a good and huge upside. The issue is not about the risk but how to mitigate them to get the best from your investment.
Trenndify believes that this knowledge will help you to manage the risk profitably.
The article was originally published at Trenndify