How to handle risk when you’re investing in cryptocurrency

Cryptocurrency like Bitcoin is an inherently risky investment (Credits: Getty)

Embarking on any kind of investment carries with it a certain level of risk.

You’ve more than likely heard of the caveat ‘past performance is not indicative of future results’ when talking about stocks and shares and it exists for a reason.

Even though there’s no way of avoiding risk when investing in cryptocurrencies (or the stock market in general, for that matter) there are ways to minimise it.

For starters, you’re only going to be investing risk capital – money you could afford to lose if the worst came to pass.

But you still need to prepare yourself for the uncomfortable lurch in your stomach when you log on and see your investment has lost a lot of money.

Secondly, you’re going to spread your money around and not put all your digital eggs into a single crypto basket. That could mean investing in a couple of different cryptocurrencies to hedge your bets against one taking a tumble.

And finally, the best thing you can do to handle the risk is to set out a broad timescale for your cryptocurrency investments before you begin.

So, for example, you may decide that you want to buy and hold a certain amount of crypto for the period of six months. This will give you a long enough spell to ride out the short-term volatility and see if you make a profit. You’ll get an idea if cryptocurrency investing is for you.

Managing information

During the allotted timescale, your mission then becomes about managing information.

If you consume too much, you may get cold feet about your investment or alternatively feel so confident you double down. On the other hand, the market is ever-changing and you want to stay informed without getting panicked.

So it will be necessary to set some rules in place. Perhaps you only check your crypto balance once a fortnight, and limit yourself to a half-hour of crypto news every other day? You’ll need to find the right balance for your situation.

Manage your information diet when it comes to cryptocurrency (Credits: Getty)

Lastly, beware of following too many ‘finfluencers’ on social media that will give you a distorted view of what the markets are doing. As with all information online, stick with reputable sources and make sure you know where it’s coming from.

‘Investment advice is activity that is legally regulated by the Financial Conduct Authority of the UK. There are hundreds of people and multiple departments in FCA that study current products and create rules in order to protect ordinary people from making wrong financial decisions,’ Galina Stavskaya, Head of Investments at Claro Money told Metro.co.uk.

‘Regulated firms and individuals must not only go through a strict due diligence process in order to get regulated by FCA, but also follow all the rules and regulations that evolve.’

Sam Volkering says...

What is cryptocurrency and how does it work?

metro.co.uk/ getty

For me it’s all about the time horizon. If you’re new to this, I don’t think you should be in it for the short term.

Take a long view and try and ignore the short-term volatility.

Sam Volkering writes about cryptocurrencies and other tech-based investment trends at Exponential Investor.

You can follow him on Twitter here.

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from News – Metro https://ift.tt/tF5Dh86