Until about 15 years ago, cryptocurrency was unheard of. After it was introduced in 2009, quite a few people were still reluctant to put any faith in the concept. It didn’t take very long for that to change, though. Between 2018 and 2020 alone, its popularity surged by almost 190 percent. From that point forward, it has been growing by nearly another 100 percent per year. It’s more mainstream now than it was in the beginning, and it has branched out into several types of cryptocurrencies.
Crypto is far more than a novelty. It has become relatively common payment options and a popular investment opportunity. It gives people a possible hedge against the volatility of other investments. In fact, it doesn’t seem to be affected by rises and drops in the value of traditional investments. In some cases, it even seems to have an equal and opposite reaction to those developments.
Unlike fiat currencies, crypto is decentralized, so its value isn’t directly related to economic stability, political turmoil, and other conventional factors. Still, the cryptocurrency market comes with quite a bit of volatility in its own right. Understanding how to invest in crypto safely and effectively is the key to maximizing gains while minimizing losses.
Diversification
As is the case with all types of investments, diversification is essential when investing in crypto. Don’t put all your eggs in one basket. Consider investing in different cryptocurrencies rather than choosing a single type. This is a growing market with new cryptos constantly emerging. Research all the options and choose those that seem the most promising. Additionally, don’t invest solely in crypto. Make it part of your portfolio, but don’t go all-in with it. Continue to invest in more conventional assets as well, such as stocks, bonds, real estate, and precious metals. That’ll give you a well-rounded portfolio to help minimize losses and protect against the volatility of both crypto and other investments.
Be Realistic
Another way to protect yourself against market volatility is to be realistic. Cryptocurrencies have seen major surges and drops in value over time. Bitcoin is a prime example. In 2010, it was worth about $0.08. By 2013, it had reached $1,000. Over the course of 2017, its value skyrocketed by nearly $19,000 only to fall back to about $3,200 within a year. Of course, in late 2021, it soared to almost $70,000 followed by yet another drop to less than $20,000. At the moment, it’s worth more than $64,000, but that could change drastically at any time. You may be able to buy relatively low and sell incredibly high, but gaining $20,000 per unit within a few weeks or months isn’t likely. Don’t let sudden spikes give you a false sense of security.
Set TP/SL Orders
Putting take profit and stop loss orders in place can also help you avoid the dangers of cryptocurrency volatility. That entails setting specific prices at which to buy and sell. If the value of the cryptos you’re investing in reach those preset levels, your position will automatically be closed. TP/SL orders prevent you from getting caught up in the moment when crypto prices hit an upward trend, and they minimize the risk of exorbitant losses if values take a turn in the opposite direction. This strategy may limit your earning potential to an extent, but it’ll also provide added protection.
Effectively Managing Market Volatility
Making cryptocurrencies part of your portfolio can protect you against the volatility of conventional investments, but cryptos can be volatile in their own right as well. With that being the case, it’s important to develop a solid strategy for investing in them. Diversification is always a smart move. Consider setting TP/SL orders to balance the risks and potential rewards, and be realistic with your expectations. Those measures can help you manage market volatility, minimize losses, and maximize returns.
