According to the most recent statistics from Glassnode, the price of bitcoin has dropped by about 55% from its high in November, and 40% of Bitcoin investors are currently losing money on their investments.
This proportion is considerably greater when you take into account the short-term traders who only started investing in bitcoin in the most recent six months, when the price of bitcoin reached its all-time high of almost $69,000.
This month, 15.5% of Bitcoin wallets have experienced unexpected losses. This is due to the value of Bitcoin decreasing to the $31, 000 level. However, Bitcoin may act as a hedge against inflation, since the cryptocurrency has a strong connection with Nasdaq.
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Are Bitcoin Investors Getting Cold Feet?
In the midst of this most recent sell-off, analysts at Glassnode saw an increase in the number of “urgent transactions.” In these transactions, investors paid higher fees, which indicated that they were ready to pay a premium in order to speed up the transaction times. Over the course of the past week, the aggregate value of all on-chain transaction fees paid hit 3.07 bitcoin, which is the highest amount ever recorded in its dataset.
The report went on to say that “the dominance of on-chain transaction fees associated with exchange deposits also signalled urgency.” This made it even more likely that bitcoin investors were trying to reduce risk, sell, or add collateral to their margin positions in response to recent market volatility.
Since the market reached its all-time high in November 2021, more than $3.15 billion worth of value has flowed into or out of exchanges, making this week’s sell-off the highest amount of value to move in either direction since then.
Four Strategies to De-Risk Your Crypto Investment
Diversify Your Investments
It is in your best interest to spread your money and your risk among a number of different investment options until you can say with absolute certainty how a particular investment will turn out. In the event that the investments do not meet expectations, this method of mitigating risk assures you that you will not be too exposed to a single investment. Additionally, if you choose the appropriate basket of cryptocurrencies, you may be able to limit your losses, lessen the volatility of the investment returns, and still enjoy the benefits when the sector takes off. This is because you will have reduced the amount of volatility in your returns. If you do not have the skills or experience to diversify your investments lucratively, opt for an automated trading software like Quantum Code to do it for you.
Hire a Fund Manager
Consider working with a fund manager who has a proven track record of successfully managing capital and who can provide you with a cryptocurrency investment opportunity that is proportionate to the level of risk and potential reward you are comfortable with taking on.
One of the benefits of using this technique is that an experienced team of investment specialists is actively managing the investment. Additionally, they have carried out essential research.
To create big returns, there are always opportunities available in every investment market. Nevertheless, the key is to strike a balance between your risk management measures and the goal return you are looking to achieve.
Stagger Your Investments
It is incredibly difficult to time investment in any market, but it is tougher to do so in the bitcoin market since it is so volatile. Consider investing a portion of your money over a period of time so that you don’t have to guess when the market will go up or down and so that you don’t put all of your money in at the peak of the market (known as dollar-cost averaging).
Staggering your investments this way, makes price changes less noticeable, reduces the stress of watching and waiting, and takes the emotion out of making a decision.
According to CoinInsider, there are many new tools on the cryptocurrency market that are able to backtest strategies. In fact, backtesting is a part of the makeup of these AI powered trading tools causing quite the stir in the markets, especially since it challenges the need for manual trading. Backtesting is particularly significant since it assists you to test new investment strategies based on historical data. We would recommend that you do your homework on these tools before jumping straight in. There are tons of resources online, including this comprehensive Quantum Code website which provides more detail on this type of investment and how you can automate your staggering investments.
Invest in Large Cap- Cryptocurrency
When trying to invest in cryptocurrencies that are still in the early adoption phase, you should be aware that the cryptocurrency market is quite volatile. Consider investing in cryptocurrencies that make up a considerable fraction of the market (for example, cryptocurrencies that have a market value that is greater than $2.5 billion) in order to mitigate the risk of the adverse consequences that can be caused by market volatility. Due to the fact that certain cryptocurrencies have a longer track record, this technique reduces the overall risk profile of the investment.
A big part of financial planning is making sure that you keep and protect your capital. Too much focus and attention is put on the accumulation phase, where returns and different investment plans take the lead, and not enough is done to make sure that the accumulated wealth is safe enough to reach the goal. Making use of de-risking strategies such as staggering your investments or diversifying investments, just to mention a few, will help you secure your financial future and your portfolio of investments.