Build awareness and adoption for your software startup with Circuit.

How to Manage Risk When Investing in Bitcoin

Bitcoin is undoubtedly a volatile asset. Its value can rise or fall dramatically within a short period. The crypto market generally experiences price swings, meaning your investment might sink, even when things seem a sure shot. Therefore, risk management is vital to any Bitcoin investment. For those starting out with bitcoin investments, provides a trustworthy avenue for trading cryptocurrencies. Here are the top ways to manage risk when investing in Bitcoin.

Avoid Concentration

The crypto industry has many investment opportunities. Also, you can invest in Bitcoin ETFs or Bitcoin-based startups. Nevertheless, research any Bitcoin investment before putting your hard-earned money in it. Ensure it's a safe project enabling you to cash out your Bitcoin whenever possible, especially if you suspect potential losses.

Store Your Bitcoins in Cold Storage

If you prefer buying and holding Bitcoin, use cold storage to safeguard your crypto asset. Cold storage enables you to mitigate most risks of centralized crypto exchanges. A crypto exchange keeps private keys, meaning it controls your crypto assets. On the other hand, cold storage allows you the full custody and control of your Bitcoins. Additionally, hard storage devices don't link to the internet. Therefore, it lowers the risk of cybercriminals and hackers accessing and transferring your funds.

Choose a Credible Crypto Exchange

By selecting credible, well-established, and liquid exchanges, you can manage custodial and investing risk when using unregulated providers. While this is not a foolproof risk management aspect, it enhances confidence, unlike using unknown, obscure, and illiquid platforms. Liquidity is particularly vital since it enables investors to convert their crypto assets when necessary. Also, credible Bitcoin exchanges allow investors to move their assets when they smell trouble.

Don't Use Leverage Excessively

Many beginners try margin trading with little knowledge about it. Investors use margin to increase their order size, allowing them the option to go short or long. Some platforms provide a leverage of as high as 100 times. Although this may sound like a good idea, a 1% move against the investor can wipe out the entire portfolio. That means you can lose your principle if the platform forces a liquidation. Sticking to low-leverage amounts is a safer approach. It allows more room for increasing the gains while creating a buffer zone for exiting a lousy trade.

Spread Your Bitcoin Investments

Some experts recommend spreading your Bitcoin investments across crypto exchanges and platforms. Owning holdings in various venues is an excellent way to play safe during platform- or exchange-specific events. This approach is more critical due to the current need for proper framework or regulatory oversight for recovery in the crypto industry.

Keep an Eye on Your Portfolio

Even if you want to hold Bitcoins long-term, monitor your portfolio regularly to determine when you can make more profits or losses when selling. Also, regular monitoring enables you to notice anything that happens to your holdings and the functional requirements for rebalancing them. Remember that Bitcoin is volatile, and prices can quickly increase or drop. Therefore, you must act promptly to avoid significant loss. Investing in Bitcoin requires a balanced approach and aggressive monitoring and responding to profitable market conditions.

Parting Shot

Many people have invested in Bitcoin and made significant gains. However, some have yet to gain while investing in this cryptocurrency. Due diligence, exercising caution, and monitoring your portfolio will help you manage risk. Also, use the correct wallet, crypto exchange, and leverage amount to minimize risks. Talk to a crypto expert or financial advisor when unsure about what to do when investing in Bitcoin.

Continue Learning