5 Ways to Manage Cryptocurrency Investment Risks as a Beginner
Do you make these cryptocurrency investment mistakes?
Cryptocurrency is highly volatile and speculative. To be successful with your cryptocurrency investments depends on how you can leverage cryptocurrency’s volatility. Every successful crypto investor and trader understands that making huge profits from crypto investments hinges on managing risks and being on the lookout for the best time to buy or sell specific crypto assets.
Seasoned cryptocurrency investors and traders recognize that failing to implement effective risk management measures can wipe away profits and capital from their cryptocurrency portfolio in seconds. As a result, depending on how you manage your investment risks, cryptocurrency’s volatile and speculative potential can be a curse or a benefit.
Unfortunately, as a beginner, you will most likely lose a major percentage of your investment during the first few months of your cryptocurrency journey due to a lack of risk appetite and a risk management culture that experienced crypto investors and traders have already mastered.
Understanding how to manage cryptocurrency investing risks is critical, whether you are a novice or an experienced crypto trader. Investment risk management minimizes your exposure to large investment losses and preserves your capital, ensuring you have some assets to fall back on even if your investment decisions do not go as planned.
As a result, it is essential to approach cryptocurrency investment cautiously to achieve the best investment return with the lowest risk possible. So, as a newbie, how do you get the best investment return with the least risk? How can you manage the risk of your cryptocurrency investments?
But first, let’s go over the most common mistakes beginners make when investing in cryptocurrencies.
Common Cryptocurrency Investment Mistakes
Investing More Than You Can Afford to Lose
As a newbie, one of the mistakes you might make with bitcoin investment is investing all of your assets or money that you cannot part with and still be good. Don’t invest money for vital necessities in cryptocurrencies. As simple as this is, it is a common mistake among beginners who hope to maximize their profits. Investing more than you can afford to lose is the most dangerous risk, especially since the return on investment is not fixed in a speculative and unpredictable cryptocurrency market.
Not Having a Well-balanced Crypto Portfolio
No matter how volatile cryptocurrencies are, their prices do not all fluctuate at the same time. Even in a bear market where all crypto assets tend to fall, not all cryptocurrencies fall by the same percentage. However, if you do not have a well-balanced crypto portfolio that includes many crypto assets, you risk losing all of your investments if your assets fall in value. Investing in a single asset and not diversifying your bitcoin investment is a common beginner’s mistake owing to a lack of market knowledge or other uncertainty.
Panic Buying or Selling of Cryptocurrency
Panic buying or selling of cryptocurrency is not only peculiar to beginners. However, beginners tend to lose more of their investments to panic buying or selling cryptocurrency. As a beginner, you are likely to be moved by your emotions, especially when seeing your investment drop drastically.
Other variables contributing to panic selling or buying cryptocurrencies include fear of missing out, uncertainty, and doubts. Failure to recognize these emotions for what they are will severely impact your investment choices, leading to panic buying or selling of your assets.
Following the Crowd
Another common beginner investment mistake is not having your own opinions and instead following the crowd. This is the most common way for an investment to fail. If you are prone to abandoning your investment strategy for each “fresh news update” on social media by so-called experts, you are most certainly NGMI (Not Gonna Make It).
Not Having an Investment Strategy
You will follow every investment advice you read on social media because you don’t have an investment strategy. As a beginner, you will make this mistake because you have yet to define the type of crypto investor you are and how much money you are willing to lose on investing.
Lack of an investing strategy exposes you to several market risks, including losing all of your investment since you lack a market entry and exit strategy. You become exposed to the market if you do not have a strategy, leading to following the crowd, not having a well-balanced portfolio, and panic selling and buying cryptocurrencies. In fact, the largest risk you can take with your crypto investments is not having a portfolio, which is second only to investing more than you can afford to lose.
How to Manage Your Cryptocurrency Investment Risks
Now you know the common mistakes you make when investing in cryptocurrency. Let’s discuss what you must do to manage these risks.
Only Invest What You Can Avoid to Lose
This is the first risk management strategy because it is the most important one. You can only have a cryptocurrency investment when you have some funds. Remember, your life should not be significantly affected if you lose your investment tomorrow. You should be able to pay your expenses, eat, and live comfortably. Following this rule ensures you are not in an endless investment loop.
Diversify Your Investment
A well-diversified portfolio spreads the investment among multiple coins, reducing the impact of volatility. You can lower risks while increasing possible returns by spreading your money across various assets. In practice, diversification spreads your risk among your assets, reducing your chances of losing everything and controlling your emotions. As a result, if one component of your investment underperforms, the others may outperform. It evens things out, and you’re not overly reliant on one thing to succeed. Diversification spreads your risk and lowers the possibility of a major loss.
Know Your Risk-to-Reward Ratio
A risk-to-reward ratio is an important risk management method to master. It offers a mathematical analysis of your asset and the possible return on investment for each crypto asset-staked unit. The risk-to-reward ratio accurately depicts the money you are willing to put at risk. Knowing your risk-to-reward ratio eliminates the need to panic buy or sell your cryptocurrency at a loss.
Have an Entry and Exit Strategy
Knowing when to buy and sell your crypto asset is vital to any risk management strategy. When you enter the market ideally and exit profitably (buy high and sell low), you can profitably make gains and prevent losses. Just like the risk-to-reward ratio, having an entry and exit strategy eliminates the need to panic buy or sell your cryptocurrency.
Understanding the Market by Doing Your Own Research
Understanding cryptocurrencies and how the market operates in terms of investment is a vital strategy for risk management. When you have a solid understanding of what you’re investing in, you’re more likely to make informed judgments based on facts rather than emotions.
So, before investing in any crypto asset, you should do your own research and be convinced of its potential and return. However, while it’s important to understand the market through adequate research, don’t forget only to invest an amount you can afford to lose.
How the Right Crypto Wallet Helps You Avoid Loss in a Bear Market
Diversification is one of the most significant ways to manage risks when investing in cryptocurrencies, regardless of the market’s movement. It ensures the investment risk is evenly shared among several assets, and you don’t lose so much when the value of one asset drastically falls.
However, while spreading your investment across different assets may help you reduce the rate of your portfolio’s free fall, keeping your crypto assets in a trustworthy crypto wallet that supports a wide range of cryptocurrencies to build a balanced and well-diversified portfolio is vital. As a result, having the right cryptocurrency wallet is critical. A cryptocurrency wallet that allows you to easily shift your assets while avoiding major loss through swift diversification.
Among the cryptocurrency wallets available today, one that stands out with this benefit is Cwallet. As an investor, you need more than just a safe place to keep your digital assets; you also need a wallet that connects you to the greater cryptocurrency market, making trading, buying, and selling simple. Cwallet edges others in this area. Cwallet is a one-of-a-kind versatile cryptocurrency wallet that combines custodial and non-custodial capabilities. It bridges the gap between Web 2.0 and Web 3.0 by combining on-chain and off-chain wallets, allowing you to manage and trade 800+ crypto assets in one location with security, simplicity, and flexibility.
Conclusion
Understanding the numerous risks associated with the cryptocurrency market is critical to having a profitable investment. However, it is critical to recognize that you cannot completely eliminate the risk connected with cryptocurrencies because human error and other variables can pose a risk.
Why wait any longer? Download the Cwallet App today to gain access to over 800 cryptocurrencies over 50 networks, allowing you to diversify your portfolio and minimize the risk on your investment.
