Investors in cryptocurrencies have had a wild ride this year. After the crypto market appeared to be stabilizing, the FTX collapsed overnight, prompting a flurry of selling from nervous buyers.
It’s understandable that many people are fretting about their bitcoin holdings and giving serious thought to abandoning the crypto market in favour of safer alternatives.
Some of your favourite cryptocurrencies may have declined by 20% or more in the past week, so in the short term, things may look shaky. However, now is not the time to abandon the long-term planning that is vital to your financial security in the future.
As the price of cryptocurrency is based entirely on speculation, its future value is difficult to predict. That is to say, Bitcoin’s value will be affected by the collective mindset of the cryptocurrency industry as a whole.
Reduced Risk of Exposure
Taking advice from a financial planner, you can reduce your exposure to risk by dividing up your investment dollars and spending less on highly volatile assets.
For investors who prefer to minimize their exposure to risk, exchange-traded funds (ETFs) may be the most suitable choice. Several crypto ETFs are now available in both Canada and the United States, and these funds follow the value of cryptocurrencies like bitcoin and Ethereum.
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These funds are considered less precarious than buying and storing cryptocurrencies itself. You’ll have to pay management fees, though, for that added sense of calm.
The best way to enter the crypto market is to buy stock in a company that provides cryptocurrency-related services or stores crypto assets. MicroStrategy, Tesla, and Block, among other IT companies, all buy bitcoin on a regular basis, thereby linking their profits to the fate of the cryptocurrency.
Reduce the Risk of Your Investment by Spreading It Out.
Some people who invest in cryptocurrencies like to refer to themselves as “Bitcoin maximalists” or “Ethereum maximalists.” This is their way of saying that all of their cryptocurrency holdings are concentrated in one coin and that they have no other holdings.
They claim that no other cryptocurrency can match Bitcoin’s potential rewards for risk. While this strategy may have worked well when the crypto market was young, it runs against to a fundamental principle of sound investing. Don’t lose sight of the importance of diversification.
You shouldn’t have more than 5% of your portfolio in digital assets, according to most experts. The sum is substantial enough to significantly benefit the portfolio if cryptocurrency prices increase, but manageable enough to keep an investor calm during periods of extreme volatility.
Your risk tolerance, ability to save money, perspective on the crypto market, and age all play a role in determining how much digital assets you should possess.
Like a stock portfolio, a bitcoin portfolio benefits greatly from diversification. Looking at the top 100 cryptocurrencies on Coingecko, for instance, may help you categorize the wide variety of digital currencies available today. By selecting coins from a variety of these bins, you can give your portfolio a more rounded spread of prices and risks.
Keep Your Attention on the Cryptos With Proven Utility.
If you’re trying to develop a long-term perspective, it makes sense to focus on resources that have already proven their worth over time. In the crypto market, the term “utility” refers to blockchain projects that have real-world applications.
One of Ethereum’s many practical applications is the ability to produce and trade non-fungible tokens (NFTs) on various markets. Ethereum also offers smart contracts, decentralized apps, and blockchain-based games.
In contrast, meme coins serve little practical purpose. Not because of anything special about them, but rather because of expectations that their price will rise rapidly. It’s best to stay away from meme coins during bear markets in crypto because their value tends to rise mostly during bull markets.
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Never Try to Predict When The Market Will Rise or Fall.
Finally, do not make the mistake of trying to predict when the market will rise or fall. Instead of purchasing crypto assets at a discount and then selling them at a profit, many investors end up buying expensively and then selling for a loss. To put it another way, they will only invest in the market when it is already speculative and frothy, and they will sell their holdings when the market undergoes a substantial collapse.
Investing in digital assets is not something that everyone should do. This type of investment is probably not the best option for investors who are looking to minimize their risk due to the high level of volatility that their values exhibit.
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