Hello Stemmians, with all the negatives on the market today I figured I would make an article on managing risk for Cryptocurrencies.
As you have probably noticed the price of any Cryptocurrency tends to fluctuate wildly in a given week. Right now we are seeing a lot of blood on the market. But 2 weeks ago most currencies were in the red, what is going on!?
Well consider that Cryptocurrency is still relatively new, heck it isn't even mainstream yet. So there will of course be periods of change. News heavily influences how the market perceives things and with the Ethereum incident a few days ago it makes sense that people would consider selling off and lowering the market values. These occasional crashes and market dips are risks that cannot be avoided, however they can be mitigated by these actions.
Always try to keep up on the news, news can make or break your profits. A couple of the sources I use are : https://www.cryptocoinsnews.com/ and http://www.altcointoday.com/. In addition I select coins that I want to invest in and keep on eye on their website like Ethereum @ https://www.ethereum.org/.
There is always some risk with your investments... When you invest in a coin you are taking a chance that the coin might crash or lose value. You should never invest everything you have into a coin as the Billionaire J.R. Simplot said "never spend your taw" meaning never spend what you need to keep playing the investment game.
But where there is risk there is opportunity. You and I invest in Cryptocurrency because we believe that the value will increase and for the most part we have seen some impressive growth across the board over the past months. This reduces the risk of investing because we can see that dips and crashes have happened before and the market tends to not only recover but surge ahead in value. Last time we saw a dip like this in Ethereum where it was around 250 dropping to 130, it then rose up to 400$ each. Now anyone who bought as much Etherum as they could when it hit 130 would still be WAY UP on their money even with this dip.
Time is important. If you are expecting that Cryptocurrency will be a get rich quick scheme you will likely be sorely disappointed. Just because you saw a currency rise 400% a month ago doesn't mean it will do that again tomorrow, you have to watch the market and that takes time. There are a lot of bitcoin millionaires out there, what made them rich more than anything else was time... They bought bitcoin when it was almost worthless and held it for YEARS until now it is worth thousands a coin. So when buying your coins consider holding them and letting them mature with time before you sell them. Also don't be quick to sell off everything when you see a dip as you can end up losing money when the market swings back.
Finally be sure to back up your wallets... I cannot stress this enough. I have heard so many horror stories of people losing their computer or wallet and being unable to get access to their coins. Print out your backup phrases and lock them up!
Thanks for Reading.
Great post. I know volatility in the crypto world has cost me some hours of sleep in the past. By treating my crypto investments more like the traditional stocks/trackers I developed a system that minimizes volatility a bit. I am curious what you think about my portfolio approach.
Next to that, I find CryptoPanic (what's in a name?) a nice crypto news aggregator. I discovered it by accident and a cool thing is that the developer is very open to suggestions for improvements :-)
I think your approach is great! I am shocked that more people aren't taking your advice. The 70/30 Rule is something I myself am planning to do once I meet some predetermined goals. The only thing I might add is a small segment called chance. While there is a lot of money to be made with the larger value coins I feel like some of these like Reddcoin (reddit's coin) I am eyeing because they are fractions of a penny and I feel that they might have a chance of growing to a dollar or more one day... They are of course more risky... but the upside is that a small investment of 100 dollars can get tens of thousands of coins. Worst case scenario you lose a hundred, best case you become rich. Ultimately I think my investment will be 70/25/5(for chance).
Also Thank you SO MUCH for Crypto panic I will start using it daily!
Thanks @cryptogopher! Interesting thought. For myself I decided to really stick to my rules. Basically the only way a 'small coin' would end up in my Play Money segment would be if I believe it would outperform my core segment in the short run. That is also the way I contain myself, otherwise I might buy all the coins just not to miss out ;-) When I am not certain about a coin, or when might be a possible moment it would become much more valuable for instance looking at their roadmap, I just don't buy. That why I also included the max 10 coins rule in this segment, to force myself to ask the question: 'Which coin should I sell and why in order to make room for this small uncertain coin?'
Thanks for mentioning CryptoPanic. I'm very open to suggestions indeed! :) Stay tuned for more great updates very soon. @cryptogopher and @cryptographer - glad you find it useful!