Crypto Investment - The Risks Associated With Crypto Investment & How To Manage Them

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Hello fam,

It is your favourite blogger @mato445 and I am happy to make this interesting post in this community today.

We will be discussing about a very nice topic in the cryptospace and this topic is no other than risk management in crypto investment.

We will be learning about the risk that comes with investing, and ways to manage those risks to prevent lost of funds or capital.

RISKS IN CRYPTO INVESTMENT & HOW TO MANAGE THEM

There is risk associated with any investment. When it comes to investing, there are actually two main outcomes: either you make money or you don't. Therefore, we fully understand that the cryptocurrency market and trading ecosystem is one of the most volatile markets where money might be wiped out in a matter of seconds as traders, investors, or enthusiasts. Therefore, methods to control and reduce the obvious risks should be included in any plans to purchase or invest in cryptocurrency.

A solid risk management plan maximizes prospective profits while drastically lowering the loss margin associated with cryptocurrency investing.


Investing in cryptocurrency carries a variety of risks. Thus, there isn't a single, universal strategy for risk reduction. The risk management system consists of an ecosystem with multiple arms that are specifically tailored to address different risk challenges. Now let's discuss the risks in crypto investment and how we can manage those risks.

SECURITY RISK

Cryptocurrencies are linked to several kinds of risk to security. Among them is hacks. It's possible for hackers to gain access to your wallet and take money from you. They might use phishing scams or other fraudulent endeavors to obtain your keys. Your assets might be taken if a cryptocurrency exchange site where your money is kept was hacked.



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In addition to gaining access to your wallet, greedy CEO of crypto exchangs may take possession of and liquidate your assets. As everyone knows, the FTX scandal is a prime illustration of exchang ceo becoming criminals and embezzling money that is under their control. Users sometimes lose their hard-earned assets in these security events, and they are frequently never retrieved. What is the best way to handle security issues when investing in cryptocurrency?


* >Do Not Click Unverified Links


Phishing links or unverified links are one way hackers could try to trick you into giving up your keys. Thus, resist the urge to click on phishing links. Typically, they present themselves as giveaway platforms where you can get cryptocurrency for doing nothing. Make sure you are navigating to the correct web URL while using exchange platforms on a browser.


* >Use Reputable Cryptocurrency Wallets:

It is advised that you keep your assets in the safest wallet. Be sure the cryptocurrency wallet you use is from a reliable source. Make sure the custodial wallet issuer has a stellar reputation for integrity if you must use them.
Web3 or non-custodial wallets are frequently advised since they provide you, the owner, complete control over your funds. As a result, even if the centralized platform fails, your money is safe because you are the only one with access to the keys—not a third party custodian.






* >Use 2FA and Increase The Number Of Your Security



Apart from the initial security measure, which is typically your password or pin, you ought to activate additional layers of security. For example, you could use two factor authentication (2FA), which entails both an email and phone code verification for transactions, or a Google authenticator code and an email or phone number code. This makes sure that even if an attacker manages to get past the first security level, they will find it difficult to get past the second and third.
Adding facial or fingerprint authentication to your wallets is another way to add more security measures. Do not save your wallet keys in locations like your email that are vulnerable to hacking. In addition to digital wallets, hardware wallets offer increased security.








* >Do Not Store Your Keys Or Phrases Online


Never save your keys or a phrase on your device or store them online, including your email: Hacking into emails and other online accounts is simple. There is a risk if your keys are stored online or in an e-mail backup. Thus, avoid keeping keys in your email. Ideally, you should keep them offline, obtain a hard wallet, write down your key word, and store the paper securely.

Crypto FLUCTUATION RISK

The largest risk associated with investing in cryptocurrencies is probably fluctuation. Every cryptocurrency's market price is susceptible to sporadic increases or decreases. It is never steady. The prices are always changing at any given moment. Investments in cryptocurrencies are significantly impacted by volatility since the amount or value of money invested in cryptocurrencies may rise or fall based on market volatility.



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Thus, putting some techniques in place to reduce fluctuation is a crucial first step in maintaining the stability and security of your cryptocurrency holdings. Thus, the following are some industry-recommended methods for reducing fluctuation.

* >Invest Just What You Are Willing To Lose



In order to avoid struggling to deal with the loss, it is crucial to avoid investing one's life savings in cryptocurrency. It feels amazing to make money on a cryptocurrency investment. But it may truly take the life out of you to find yourself at the other end of the rope. Thus, a fantastic fluctuation risk approach is to always invest in something you could lose and yet be fine.
Putting money into areas other than cryptocurrency is the definition of investing what you could afford to lose. For cash flow, you might have a real-world business. It is easier to handle losses in the cryptocurrency market when you have some money in other aspects of your life.


* >Always Add Stop Loss


The reason the stop loss method is so important is that fluctuations may occur more quickly than you can respond to it. For instance, a certain cryptocurrency's price could plummet so quickly that you would not notice it. When the price of your asset falls to a preset level, stop-loss orders cause it to be automatically sold.
Let's imagine that a trader spent $1 per unit for a particular token. Perhaps he will place a stop-loss order at $0.7. This implies that the cryptocurrency should be automatically sold by the system whenever the price falls to $0.7. In actuality, this automatically lowers the trader's loss. In a catastrophic bear market, the value of a cryptocurrency could be lost without stop-loss orders.



* >Diversification


The impact of fluctuation on cryptocurrency investments varies depending on the token. Some tokens may be performing well when the market for a given token is down. Spreading one's investment among numerous cryptocurrencies so that, even if one or two are down, the others may be performing well in the market is, therefore, the first sensible method of managing fluctuation.
Investing all of your capital in a single token is a simple method to profit from bullish market conditions. But in a bearish market, it also exposes a trader to far greater danger. However, diversification lessens the amount lost if the market declines for any of the coins in the trader's portfolio by allowing him to spread the risk over a number of cryptocurrency investments.

CONCLUSION

Investing in cryptocurrency is one of the riskiest forms of investing; nevertheless, by minimizing risks and using appropriate risk management techniques, one can maximize profits and reduce losses. You can always conduct independent research to find more risk management techniques that may be beneficial to you.