6 Ways to Minimise Investors’ Risks in Cryptocurrency

All of us in the crypto world want to earn money with cryptocurrencies but are concerned about volatility, which is one of the most well-known characteristics of cryptocurrencies. For instance, Bitcoin's value dropped to US$33,000 in January 2022 despite reaching an all-time high of US$68,000 in November 2021. Investors were worried about a "crypto winter," a situation when prices remain low with no signs of rising for more than a year. The market conditions were so poor.

It is normal to wonder whether investing in cryptocurrencies is a wise move for your investment portfolio given the volatility and concerns of crypto winter. For those who are interested in learning how to enter the cryptocurrency world with the least amount of danger, here are a few pointers which can help minimise risks:

1. Investing Buffer Money

Given all the talk about volatility, it should be clear that all funds shouldn’t be invested in cryptocurrency. Therefore, if you do decide to invest in cryptocurrencies, be sure to have a reserve fund. This money should cover expenses other than your essential needs. It's not a good idea to borrow money to invest in cryptocurrencies. Instead, for the best results, experts advise investing a small sum over a long period. You don't have to invest a large sum of money at once; you can expand it as and when you have additional money available.

2. Investing in Companies With Crypto Holdings

You could invest in businesses that hold cryptocurrency if you are hesitant to invest directly in cryptocurrencies. The businesses would then stand between you and the volatility of cryptocurrencies. The quantity of cryptocurrency the company holds on its balance sheet determines the extent of risk in this situation. To find out more about the company's cryptocurrency holdings, look at its balance sheet. For instance, the value of Tesla's Bitcoin holdings as of December 31, 2021, is $1.99 billion. A rise in the price of Bitcoin can also cause the stock price of Tesla to increase. 

3. Investing Through Index Funds

You also have the option of using index funds to invest in cryptocurrencies. A portfolio of stocks known as an index fund is created to closely resemble the composition of an index of the financial markets. The foundation of these funds is the idea that over the long run, the market will perform better than any investment. You can utilise index funds to invest in cryptocurrencies, just like you can with investments in conventional financial markets. The top 10 and 20 cryptocurrencies by market capitalization, respectively, are exposed to purchasers through crypto index funds like Crypto10 and Crypto20, for instance. 

4. Copy-Trading

By using this approach, you only duplicate the cryptocurrency investments of experienced traders. On several cryptocurrency trading platforms, including eToro, Coinmatics and 3Commas, you can simply clone trades. Simply choose a crypto trader based on elements like past performance, the number of followers they have, and the degree of risk involved in their bets. Following the selection of a trader based on these criteria, you can link your account to that trader's account so that it will automatically purchase and sell the same assets as the trader. 

5. Investing in Crypto Platforms

By staking money on cryptocurrency infrastructure, you can invest in cryptocurrencies as well. In essence, this refers to businesses that are actively engaged in the cryptocurrency sector. This covers mining firms and cryptocurrency trading websites. Coinbase, a cryptocurrency trading platform, and Riot Blockchain Inc., a developer of blockchain infrastructure, are two examples of publicly traded companies active in the blockchain industry. 

6. Hedging

You can hedge your bets if you are unsure of the direction you believe the asset will move. When you use a primary trade in the way you anticipate the market to move and a secondary trade in the opposite direction, you are said to be hedging your positions. No matter if the asset's value increases or decreases, hedging will save you from losing money.

By going long or short in the futures market, cryptocurrency investors can protect their capital. Going long is a strategy where you decide to purchase a cryptocurrency at today's prices at a specific future date because you anticipate its value to increase. Going short, on the other hand, is a technique where you commit to selling a coin at the current price at a specific point in the future if you believe its value will decrease. 

Finally, doing extensive market research is one of the most crucial things you can do to lower risk while investing in cryptocurrencies. Avoid basing your investment choices on hype (remember the Squid Game Token fraud?). Make sure you are not merely investing in cryptocurrencies by taking the time to research the asset you wish to purchase. If asset prices decline at some point in the future, this will guarantee the least loss.  

Written By: Devika Mishra

Edited By: Nidhi Jha