6 Ways to Minimize Risks When Investing in Crypto

By July 27, 2022July 28th, 20224 minute read
6 Ways to Minimize Risks When Investing in Crypto

Cryptocurrencies are, by nature, mysterious, as it’s right there in the name. Additionally, if you go by Warren Buffett’s recommendation to never invest in businesses, you don’t understand that it could be difficult to justify investing in a currency composed of math rather than gold.

However, specific cryptocurrencies’ astonishing performance is equally difficult to ignore: From just under $5,000 in March 2020 to more than $60,000 in April 2021, the cost of one bitcoin increased dramatically.

The enthusiasm around digital currency may leave some investors feeling like the lonely kid at the pool party, wanting to join their pals in the deep end but too afraid to dive in.

For those investors who are very interested in doing so and believe it to be a dangerous endeavor, we have compiled a list of ways to reduce the risk of crypto investments. Read this article carefully!

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#1 Invest buffer money

Given all the talk about volatility, it should be clear that you cannot invest all your funds in crypto. Therefore, if you decide to invest in cryptocurrencies, be sure to have buffer money. This money should be extra money that you don’t require to meet your basic necessities. It’s never a good idea to obtain money to invest in crypto. Instead, experts suggest investing a small sum over a long time for the best results. You don’t have to invest a large sum of money at once; you may expand it with additional resources available.

#2 Investing in companies with Crypto holdings

If you are unsure about investing directly in crypto, you might consider investing in businesses that have crypto holdings. The companies would then act as a bridge between you and crypto volatility. The extent of risk depends on the quantity of crypto the business holds on its balance sheet. Look at its balance sheet to find out more about the business’s cryptocurrency holdings. For example, the value of Tesla’s Bitcoin holdings was $1.99 billion as of December 31, 2021. If the value of Bitcoin rises, this will automatically cause Tesla’s stock price to rise.

#3 Investing through index funds

Another option to invest in a crypto is by using index funds. An index fund simply means a portfolio of stocks that are created to closely resemble the composition of an index of the financial markets. The foundation of these funds is on the idea that over the long run, the market will perform better than any investment. You can utilize index funds to invest in cryptocurrencies, much as investments in conventional financial markets. For example, cryptocurrency index funds like Crypto10 and Crypto20 expose purchasers to the top 10 and top 20 cryptocurrencies, respectively, based on market capitalization.

#4 Copy-trading

In this approach, you copy the crypto investments of experienced traders. You can easily duplicate their trades on multiple crypto trading platforms. First, you must select a crypto trader based on their track record, the number of followers, and the degree of risk involved in their trades. After you choose a crypto 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

You can also invest in crypto by staking money on cryptocurrency infrastructure. This means you choose companies that are actively engaged in cryptocurrency. This includes mining firms and cryptocurrency trading platforms. In addition, there are various crypto trading platforms and blockchain developers on whom you can rely.

#6 Hedging

You can hedge your bets if you are unclear about the way you believe the asset will head in. Hedging means using a primary trade in the way you anticipate the market to move and a secondary trade in the opposite direction. Whether the asset’s value increases or decreases, hedging will save you from losing money.

Crypto investors can hedge their investments by going long or short in the futures market. Going long is an approach where you decide to purchase a cryptocurrency at today’s prices at a specific future date because you anticipate its value to increase. On the other hand, going short is an approach 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.

Bottom line

Finally, doing extensive market research is one of the most crucial things you can do to lower risk while investing in crypto. Avoid making your investment choices based on hype (remember the Squid Game Token fraud?). By taking the time to research the asset, you wish to purchase and make sure you are not investing all your funds in crypto. This will guarantee the slightest loss in case the asset values decline at some time in the future.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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Harshita Shrivastava

Harshita Shrivastava

Harshita Shrivastava is an Associate Content Writer with WazirX. She did her graduation in E-Commerce and loved the concept of Digital Marketing. With knowledge of SEO and Content Writing, she knows how to win her content game!

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