5 Ways to Reduce Risks When Investing in Cryptocurrencies and Tokens

The rapid growth of the cryptocurrency market attracted enthusiasts with different backgrounds — sometimes without even minimal knowledge in the investment theory. Getting rich in a couple of days is a very attractive prospect, but, as practice shows, in the cryptocurrency market the most patient player wins. In this post you can find some tips that can help both beginners and experienced investors when entering the cryptocurrency market:
— Diversify your investments. On a highly volatile crypto-market “putting all eggs in one basket” is extremely risky, even if you are investing in the cryptocurrencies or tokens with greatest capitalization. It is much more secure to have a balanced investment portfolio, that will help reduce risks even when investing at the ICO stage.
— Rely on the idea, not on a specific cryptocurrency. With the blockchain development nowadays an increasing number of tokens have a real infrastructure solution, an idea that overshadows the narrow “currency function” . If any of these ideas seem promising to you, then it is more prudent to invest in several projects in this field in order to reduce the influence of unpredictable factors that could negatively affect even the most promising project.
— Hedging. Despite the rapid pace of development, the cryptocurrency industry is still very unstable and sensitive to many factors that, if the outcome is unfavorable, can cause a significant drop on the whole market. Therefore it is very important to use hedging instruments — for example, to expand your portfolio with investments in precious metals, stocks and other traditional assets. For this purpose, special investment funds are being created, for example, the ZEST hedge fund in the ZODIAQ ecosystem.
— Avoid cryptocurrencies with low liquidity. Low liquidity of the currency leads to the situation when every attempt to sell it ends with a significant price drop. To avoid this, you should analyse such parameters as the volume of trading, volatility and liquidity of assets — thankfully to date these indicators can be conveniently monitored on all major exchanges.
— Potential for growth. Obviously, the tokens purchased at the ICO stage can potentially bring the greatest profit — for example, the price of the NXT token since ICO to date has increased by +1151965%. But the risks with such investments are much higher. To assess the project’s potential you should thoroughly study its objectives, team, technical documentation, scalability and other factors.