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Four strategies to de-risking your cryptocurrency investment

17 May 2022 Jonty Sacks, Partner at Jaltech

Over the past few years, cryptocurrency investments have rapidly become one of the most popular high returns investment opportunities in the market, with many medium to long term investors realising significant gains.

As with most high yielding investments, investors need to be mindful that the associated risks are generally much higher than traditional lower-yielding investment opportunities.

In order to mitigate a number of the risks associated with cryptocurrency investing, we have set out below a few measures which seasoned investors have been implementing.

Stagger your investment

Timing an investment in any market is extremely difficult, particularly in the cryptocurrency market which is very volatile.

To avoid trying to time the market and to lower the risk of investing all your capital at the top of the market, consider staggering your investment over a period of time (known as dollar-cost averaging).

This strategy reduces the impact of price movements, removes the stress of watching and waiting, and eliminates the emotional element from your decision-making process.

Diversification, Diversification, Diversification!

Unless you’re 100% certain about the outcome of a specific investment, it’s advisable to diversify your investment/risk across multiple investment opportunities. This de-risking measure ensures that you are not too exposed to a single investment, should the investments underperform. In addition, by selecting the right basket of cryptocurrencies, you may be able to limit your losses and reduce the fluctuations of the investment returns while still enjoying the gains as the sector takes off.

Invest in large-cap cryptocurrencies

The cryptocurrency market is extremely volatile, even more so if you are looking to invest in cryptocurrencies that are still in the early adoption phase.

To lower the risk of the effects of volatility, consider investing in cryptocurrencies which make up a significant portion of the market (for example, cryptocurrencies which have a market cap of over $2.5b). This strategy lowers the risk profile of the investment as these cryptocurrencies are more established.

Appoint a fund manager

If investing isn’t your strong suit, consider selecting a fund manager with a track record of managing capital and who has an opportunity that matches your risk/return profile.

The advantage of this approach is that an experienced team of investment experts have performed the necessary research and is actively managing the investment.

As with any investment market, there are always opportunities to generate significant returns, however, the key is to balance your risk strategies with your target return objective.

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