“Never invest more than you can afford to lose” and other tips to protect yourself from crypto crashes
“I thought crypto was profitable. It really took a toll on my mental health.” Mumbai-based student Ajay Mutke sums up the sentiment among thousands of crypto investors following the dramatic fall in cryptocurrency values over the past few days. The 26-year-old, who borrowed Rs 50,000 from his father to invest in crypto, says he has suffered losses of more than 60 percent of his original investment.
Crypto investors are concerned as the world’s largest cryptocurrency, Bitcoin and other digital coins keep crashing. The entire crypto market now has a market cap of $1.2 trillion, less than half the $2.9 trillion it was worth in November. The crypto slump will likely scare off some of the retail investors who have been pouring money into crypto during its rise.
Ali Ittarwala also suffered big losses in the recent market wipeout. The 41-year-old says he’s panicked as he continues to look for ways to recoup his losses. “I woke up in the morning and suddenly my crypto portfolio was red,” he says, adding that he has invested most of his life savings in crypto assets.
A decline in crypto prices is usually touted as a buying opportunity, pushing the price down. However, it’s unclear whether investors will “buy the dip” this time around.
Ankita Bhatnagar, a 19-year-old medical student who recently invested in crypto on the advice of her friends, now regrets her decision. “What a waste of time,” she sighs, underscoring her frustration at losing her pocket money.
In today’s column, we discuss strategies to safely invest in cryptocurrencies so that you don’t invest more than you can afford to lose.
Risks to consider before investing
It’s important to understand what you’re getting yourself into before investing in digital assets. First, the cryptographic nature of the blockchain should be understood by every investor.
Investors should understand how a transaction is recorded in a distributed database and how different blockchains support different cryptocoins. It is important to understand what technology powers these coins.
For example in the recent case of luna stablecoin crash, While stablecoins promise to remain stable even as the crypto market fluctuates, Luna’s price fell more than 99 percent due to technical anomalies.
Don’t be shocked if you see the value of cryptos going up or down significantly. In fact, they’ve been known to rise and fall by double-digit percentages in a matter of hours. Volatility is driving investors to bet big on crypto. This is caused by a number of factors including coin supply and demand, user sentiment, government regulation and sometimes even a tweet from tech entrepreneurs like Elon Musk.
Unfortunately, the world is Crypto is full of scams. Fake identities, apps, crypto wallets, and emails are all designed to trick victims into giving up their private keys — the crypto equivalent of a passcode. Then there are classic rug-pull coins that exploit fads and run away with investors’ money. For example, the recent case of the Squid Game Tokenprevented many holders from reselling their tokens and ultimately stole millions of dollars.
While cryptos are widely accepted, regulating them is still a challenge. In addition, when a crypto exchange holds your wealth, there is still a risk that you could lose all your capital.
One thing is clear: cryptos are risky investments and can result in significant financial losses. Therefore, creating a risk tolerance plan can be helpful. Follow the golden rule, only invest what you can afford to lose. If you cannot face the likely complete loss of your crypto investment, it means you cannot afford the risk of investing the amount you are considering.
Invest only the money that will not change or interfere with your lifestyle in any way. Try to invest a small part of your income. Here’s a mantra to follow: give yourself a certain amount to invest each month and stop investing when it’s gone. This way, even if you lose all your money, your financial stability will not be jeopardized.
Putting all your eggs in one basket is not the right strategy in the crypto world. It is better to split your investable income into different coins and exchanges. This is because not all exchanges have the same assets. For example, if you want to invest in different coins, you might choose a stablecoin, a coin based on Proof-of-Work consensus algorithms like Bitcoin, Ethereum, etc eco friendly coin. By spreading your investments across different digital assets, crypto investors can reduce the overall risk profile.
The key to effective crypto investing is using the “Limiting Order” feature. Use the algorithm to your advantage. Start limiting orders so you can protect yourself even when you are asleep and the price plummets when the market moves against you.
Only use what you can afford. When buying coins, choose small amounts, don’t fill your wallet with large amounts of coins. However, if you use too much leverage, your trades will not have enough time to breathe and you could lose your entire principal during a market crash.
Last but not least, hold your coins, crypto is notorious for its volatility, but investors have only reaped massive gains after holding their coins. Long-term investors should focus more on holding than buying.
Emotions tend to survive. Managing your emotions is the most important thing in the crypto world. Fear of loss and greed are every trader’s worst enemy. Every investment involves a certain risk. Don’t follow the trend blindly. It is necessary to do your own research and then determine what is most appropriate.
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