When Bitcoin debuted in 2009, only a few people were interested in investing in blockchain projects. When investors finally realized the potential of blockchain technology, cryptocurrency became a buzzword.
The rise of blockchain technology is now felt in various industries and continues to impact many lives. For those looking into investing in cryptocurrencies, here are four tips for effective crypto asset management:
- Have A Purpose
Like any type of asset, there must be a reason why you invested in cryptocurrencies. Having a purpose helps you eliminate the fear of missing out (FOMO) and enables you to develop a sound investing strategy. Cryptocurrency investing is highly volatile; thus, your financial stability shouldn’t be affected should there be sudden swings. A sound financial plan should be based on thorough research, your lifestyle, as well as your financial capabilities and limits.
Sticking to a long-term goal doesn’t mean you stick to a plan that doesn’t adapt to current market situations. Think of your purpose as a compass rather than a blueprint. Your end goal should guide you when making decisions in crypto investing, and you should remind yourself continuously not to get stuck in an absolute mindset.
- Automate Your Process
Compared to the stock market, which operates from Monday to Friday, the crypto market is open for trades 24/7. The crypto market never sleeps, and a lot can happen in minutes. For an investor who still has to work at least eight hours a day or someone who manages a business to take care of family responsibilities, it can be challenging to manage their portfolio. Switching their positions to prevent any loss if the currency they’re trading in is about to nosedive is something challenging to execute.
To make it possible to keep your losses minimal while you work your day job or manage your business, you may use arbitrage bots. These types of bots are helpful for traders to maximize their capital through round-the-clock monitoring of different exchanges and acting according to signals dictated by an investor.
A strategy you can apply across all types of traditional and new investments is diversification. Diversification is a good habit an investor should have to protect his capital. This strategy means spreading your investments across the market to protect your portfolio from the volatility of the cryptocurrency space.
Novice investors believe that holding on to only one type of coin, Bitcoin, will make them succeed in reaching their journey towards wealth. The thought of holding on to a stable currency is correct; however, this strategy will not protect their capital should Bitcoin prices crash.
To ensure your diversification strategy aids in hitting your goal, it’s essential to consider these factors:
- Time Horizon
As mentioned, the fundamental thing to consider when investing is your purpose. Investing without any concrete reason can make you vulnerable to hyped blockchain projects and may push you off your path. Consider when you need the money you’ll gain from your crypto investments. The length of time will also help you determine your risk tolerance and can help you decide if cryptocurrency investing is something you want to include in your portfolio.
- Risk Appetite
The time horizon and your capital influence your risk tolerance. How early do you expect to reap the gains of your investments? How much is your target wins, and how much are you willing to invest? These are some of the questions you should ask yourself. The answers to these questions will help you evaluate how much allocation will be given to stable currencies, emerging blockchain projects, and other types of digital assets. Just keep in mind that experts suggest allocating only one percent of the total portfolio to highly volatile crypto projects to ensure your portfolio’s exposure to market risks is limited.
- Have An Exit Strategy
An average trader has a good strategy; an excellent trader includes a good exit plan in his strategy. This thinking is a healthy way to be reminded that all good trends eventually end through a sudden change in the market or because of oversaturation. It’s also wise to consider that all good trades come to an end. Wishfully hoping to bounce back from a market crash and avoid any correction to keep up the rally will eventually affect your portfolio.
Prevent The FOMO
Cryptocurrency investing is one of the most hyped types of blockchain spaces currently taking the world by storm. The volatility of this market is not suited for everyone. Hence, it’s best to do your due diligence before plunging in. One of the most critical things to keep in mind is that emotions shouldn’t influence your financial decisions, and it’s best to avoid the hype around this market if you’re not yet financially sound.