RISK MANAGEMENT IN CRYPTO

The word “Risk” is feared by so many people. It reminds us that there is a chance that we lose, and no one likes to lose. Throughout history, people have had a lot to say about risk. While some preach that “A bird in the hand is worth two in the bush,” some will tell you that “scared money don’t make no money.”

We know that almost everything that has to do with making money comes with risk. Cryptocurrencies are no different, and that is why everyone involved in Crypto needs to understand the risk involved and strategize properly to mitigate those risks.

Risk means there is a possibility of losing all or part of your money.

Why is managing risk so important?

The reason is simple; so you can stay in the game for the long term. People that cannot manage their risk exposure often lose their capital. If you are looking to make money through Crypto for a long while, it is important to know and understand the crocodiles in these waters and navigate your way around them.

Managing your risk is much more important than making a profit. If you make profits but cannot manage your risk, there is no way you will be able to sustain your results. Capital in the hands of a trader that cannot manage risk is like water in a basket.

What risks exist in Crypto?

Devaluation: Bitcoin is down almost 50% from its ATH. If you bought bitcoin at its all-time high, you have lost almost half of your money. Many altcoins are down much worse than bitcoin, with some down about -70%. The bear market is unfriendly, and devaluations happen faster than you can say Jack. If you are ever caught on the wrong side of the market without a plan to secure your capital, you might lose a lot of money.

Security Risk: Your assets are always at the risk of being stolen through a wallet compromise. It is sound advice to store your long-term bags on a hardware wallet to secure your assets and keep them from malicious actors on the internet. Wallet compromise is the second most common cause of capital loss. In early August last year, hackers stole as much as $600 million from several users, exploiting a vulnerability in the poly network.

Rugs: the cryptocurrency world is decentralized, meaning there is little regulation and control. So many malicious actors take advantage of this to create scam projects and lure investors into buying these projects. Unlike devaluation, where you lose only a part of your, capital when you buy a rugged project, you lose all your money.

Is leverage good for you?

There is no straightforward answer to this. It depends on your personality and what your risk appetite is. There is no doubt that leverage exposes you to much more risk than spot trading. It is better suited to people who like catching short-term moves. However, high leverage isn’t advisable and is bound to burn any trader. Spot traders make more money than leveraged traders do in the long term.

It isn’t advisable to be afraid of risk; rather, you should learn about it and master it. As Albert Einstein puts it, “A ship in port is safe; but that is not what ships are built for.”

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