Investing in Cryptocurrency 101: Balancing Risks

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(Newswire.net — November 3, 2021) — Everyone knows that the COVID-19 pandemic has far-reaching effects. As businesses are forced to shut down, unemployment rates skyrocket and everyone is restricted to staying at home due to the highly contagious virus, people have turned online for many activities, which includes working, studying, shopping and even investing.

While the value of stocks plummeted and bonds became unstable, people have turned to cryptocurrencies to earn some much-needed extra income, while some did it out of curiosity and boredom, which has made their prices shoot up.

This has engendered a boom in the use and trading of digital currencies, the creation of many cryptocurrency-based products and services, such as digital currency exchanges, and a wider market that has led to more and more people wanting a piece of the action. 

However, while it may be easy to invest in cryptocurrency—everything can be done online through digital wallets and exchanges—many who dive into it without knowing a thing have encountered huge losses as it is a high-risk and high-return investment. 

Unlike stocks, bonds, gold and other assets, cryptocurrencies have a highly volatile price that makes it a risky investment. Knowing how to balance the risks is key to earning big and mitigating losses. 

First off, it is important to do in-depth research. Type “how to invest in cryptocurrency” in Google and start from there. Learn which wallets and digital currency exchanges that offer the lowest charges are legit. Ensure that the exchange is fully non-custodial for added security. Be wary of get-rich-quick schemes and know where hard-earned money is being placed. 

Ask family, friends and even co-workers who have experience in trading cryptocurrencies about which ones to buy. Odds are their firsthand experience would offer meaningful information. Check it out against data from research and it will build a know-how for investing properly in cryptocurrency, such as knowing the right time to buy and sell.

Second, start small. Do not buy huge amounts of digital currencies in one go. Test the waters out first and accumulate firsthand experience in cryptocurrency trading before spending big. Going all out has higher risks involved—the potential for high rewards is definitely there, but so is the possibility of losing big, so proceed at your own risk.

Another tip to balance risks in cryptocurrency investment is that one should not invest all their available money in one digital currency. A scenario like this could really happen, as it has happened before: putting the entirety of one’s savings in buying Nokia stocks and then losing everything after it failed. 

Diversify and invest in different companies to mitigate losses. For instance, if that investor bought Apple, Samsung and Nokia stocks, then he still would have earned from the first two even if the Nokia investment failed. 

“The question investors need to answer isn’t what strategy worked yesterday but what strategy will work tomorrow. When you’re trying to reduce risk in your portfolio, you want diversified assets that aren’t closely correlated,” crypto-to-crypto exchange Fabriik Weave General Manager Glen Broomfield said.