Strategies For Managing Your Bitcoin Portfolio Risks
Bitcoin launched a new era in finance, so it’s unsurprising that it’s now the biggest cryptocurrency on the market. There are plenty of reasons to invest in this digital currency, but it’s not something to enter into lightly.
Why is Bitcoin attractive?
- Diversification: The ups and downs of the traditional financial markets don’t appear to impact crypto, so it’s a great way to diversify your portfolio.
- Decentralised: Because no one person or institution owns, manages or controls the system’s framework, there is greater anonymity and transparency. A single point of failure has less of an impact in a decentralised network than in a centralised one.
- Cheaper transactions: Sending money can be expensive – especially when doing it across borders. Although crypto transaction fees fluctuate, they are generally less expensive.
- Faster transaction speeds: Transactions in traditional financial markets can take days to complete, but that’s reduced to mere minutes with crypto.
What are the risks of investing in Bitcoin?
Volatility
The crypto market is far more volatile than stocks, commodities and forex. It can be drastically affected simply by the media reporting the opinions of influencers and business moguls. However, Bitcoin is more stable than other cryptocurrencies.
Not widely accepted
It’s far more difficult to use Bitcoin for physical purchases because not many companies will accept it as a form of payment. This means it’s not a good idea to tie up too much of your money in it.
Wallets can be lost
Billionaire entrepreneur Mark Cuban recently lost close to $1 million when scammers drained his crypto wallets after he downloaded a spoof app. The nature of the decentralised system means it’s impossible to get it back after falling victim to something like this, so you need to be careful.
Investing in Bitcoin safely
- Legal advice: Governments around the world are trying to get a handle on cryptocurrency, so you need to ensure you have a deep knowledge of the ever-changing legal framework. This can also help you stay on top of your tax obligations.
- Stop-loss orders: Given the cryptocurrency market’s volatility, you can use stop-loss orders to sell your Bitcoin when the price drops to a certain level. This has the effect of limiting your losses to an amount you’re comfortable with.
- Stay informed: There are a huge number of dedicated crypto news outlets, making it easy to keep abreast of factors that could impact your investment. When it comes to Bitcoin, significant news is often covered by the national media.
- Be realistic: There are plenty of stories about people who made their fortune in crypto, but that won’t happen to everyone. Only invest when you’ve set clear goals for what you want to achieve.
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