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Simple Crypto Risk Management Strategies to increase ROI

Learn the 4 basics to increase your cryptocurrency ROI. Yes, damn right !

1. Diversify and Split your portfolio between high, medium, and low-risk investments and give them appropriate weightings (A good risk indicator is cryptocurrency’s Market cap).

Diversification is a critical component to building a healthy investment portfolio because it helps reduce your risk from a single black swan event crashing you portfolio. Investing all your money into one company or one cryptocurrency means if that company or cryptocurrency, starts performing poorly all your invested money are at extreme risk . Makes us sound like Warren Buffett here.

So, investing in number cryptocurrencies across different sectors, helps protect your downside. Diversification is also important because different investments change value at different times which enables you to do swing training if opportunity rises.

Consider anyone who was heavily invested in Amazon at the turn of the millennium. In December of 2000, shares of Amazon were selling for more than $100. By the following October, they had fallen to below $6. Imagine your portfolio shrinking from $100000 to $6000. It was not until December of 2007 that it had climbed back into the $90 range. A cryptocurrency world can be even more volatile than this. Brace yourselves. Let us take Ripple (XRP) as example, one of the larger cryptocurrencies by market cap. The high of $3.40 in 2018 has dropped to 0.15$ in 2020. Your $100 000 would have dropped to $4400. Not a pretty sight.

2. Consider holding some stable coins to help provide liquidity for your portfolio

Stable coins form a bridge between volatile cryptocurrencies and stable real-world Fiat money, therefore it is a great option as storing liquidity for the next buying opportunity in the market. Stable coins can help you quickly and easily lock in gains when you sell your crypto as well as to maintain all your transactions within crypto exchanges or your wallet. Examples include USD Tether (USDT), USDC, and PAX Gold.

3. Rebalance your portfolio if needed.

Allocate new or reallocate existing capital strategically to avoid overweighting any one area of your portfolio – If you have made big gains recently from one coin, it could be wise idea to redistribute some of it or lock portion of it in stable coins. Remember ,all markets follow cycles.

4. Dollar cost averaging (DCA). The most practical thing you can do. It involves investing smaller amounts of money on a regular basis, regardless of market conditions. It is a particularly powerful strategy in volatile markets such as crypto.

For investment periods of 10 years, the simple strategy of Dollar-Cost Averaging outperforms anyone who tries to time the market at least in S&P 500. Yes, that’s right ! The reason behind is that Buy the Dip strategy requires you to time the market, which no one is able to do and what if the dip keeps dipping? If you happened to successfully buy the dip once, take your victory lap then get back to DCA. You might think you have the ability to time the market, but we suggest attributing your trade to good luck. Predicting dips in a long run beforehand is near impossible; you can learn that easy way or the hard way. There is roughly a one-in-four chance of beating DCA when using a Buy the Dip strategy with a 10% to 20% dip threshold.

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