It’s been a rollercoaster year for crypto investors. When it seemed like the cryptocurrency market was recovering, then came the overnight collapse of FTX which set off a wave of panic selling by investors. It makes sense that a lot of investors are now worried about the future of their cryptocurrency portfolios, and others are considering completely leaving the market in pursuit of less risky investments.
In the near term, things may seem unstable, considering that some of your favourite cryptocurrencies may have dropped by 20% or more in only the past week. But now is not the time to stop using the kind of long-term thinking that is the key to securing your financial future.
It is difficult to forecast what the future holds for this unstable asset because the price of crypto is solely reliant on speculative activity. In other words, the sentiment of the larger crypto community will have an impact on Bitcoin’s performance.
Indirect exposure to Crypto assets
Your risk exposure can be decreased by spreading out and reducing the amount of money you spend on buying highly volatile assets, after consulting your financial advisor.
ETFs, or exchange-traded funds, can be the best option for risk-averse investors. The price of cryptocurrencies like bitcoin and Ethereum is currently tracked by several crypto ETFs in both Canada and the United States. Compared to directly purchasing and storing cryptocurrency, these funds are seen to be less risky. For this increased peace of mind, you’ll need to pay management fees.
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Purchasing stock in businesses that offer cryptocurrency-related services or hold crypto assets is a better approach to gaining access to the market for cryptocurrencies. Regular bitcoin purchases by tech firms like MicroStrategy, and to a lesser extent Tesla and Block, effectively link their revenues to the fate of the cryptocurrency.
Spread and minimize your capital allocation
Some digital asset investors like to call themselves “Bitcoin maximalists” or “Ethereum maximalists” in the industry. This is their way of expressing that they exclusively hold positions in one cryptocurrency and that their portfolio has been fully invested in that particular coin. They assert that no other cryptocurrency can provide the same level of risk-reward upside. This may have been an effective technique when the cryptocurrency market was still in its infancy, but in many ways, it violates one of the tenets of wise investing: Keep your diversification in mind.
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Most experts agree that digital assets should not make up more than 5% of your portfolio. The amount is large enough to have a truly positive influence on the portfolio if crypto prices rise but small enough to keep an investor at ease during times of significant volatility.” The amount of digital assets you should hold ultimately depends on your risk appetite, your disposable income, your age, and your market views.
Diversification is essential to a successful cryptocurrency portfolio, just as it is to a successful stock portfolio. You may divide cryptocurrencies into several baskets if you take a look at the top 100 cryptocurrencies listed on Coingecko, for instance. You can add some basic diversification to your portfolio by selecting cryptos from a number of these baskets.
Focus on cryptos with proven utility
It makes sense to target assets that have demonstrated long-term utility to build a long-term mindset. The term “utility” has a very specific connotation in the cryptocurrency industry; it refers to blockchain initiatives with practical applications. For instance, Ethereum has extremely practical uses: You can create and exchange non-fungible tokens (NFTs) on several exchanges. Ethereum also provides blockchain-based gaming, decentralized applications, and smart contracts.
Meme coins, in contrast, are not very useful. Not because they have any intrinsic value, but because investors believe that their value will soar. Because meme coins tend to increase mainly during crypto bull markets, it would be wise to avoid them during any market collapse.
Do not time the market.
Last but not least, refrain from attempting to time the market. Many crypto asset investors wind up buying high and selling low rather than buying cheap and selling high. To put it another way, they only invest in the market when it is already speculative and bubbly, and they exit when the market experiences a significant decline.
Digital assets investment is not for everyone. Because of the high volatility of their values, this form of investing is probably not a good choice for cautious investors.