For certain investors, cryptocurrency is an investment for the long term and also an investment in value. Some see it as a method to bet on the market and possibly generate a significant profit. For others, it’s just an alternative investment that’s worthwhile, but a small part of a portfolio of well-diversified financial assets.
Whatever your views regarding crypto or approach when it comes to trading, you’ll observe that crypto markets tend to be volatile during times of economic instability.
What steps should you take to secure your cryptocurrency investments in a volatile economy?
Secure private keys, use hardware wallets, practice strong cybersecurity, research projects, and employ risk management to secure your crypto investments.
The Volatile Economy
The subject of economic volatility can be a tangled topic because people determine “volatility” in various ways and affect markets in unpredictable ways. Fusions and acquisitions activities, political changes in global dynamics, concerns about culture, and abrupt rises in investor optimism or skepticism can all lead to a chain of events that can turn the cryptocurrency market (along with the stock market, real property market, and other markets) to erupt into chaos.
It’s not necessarily a positive factor or a negative investment option; it’s just a set-up of conditions that are defined by unpredictability and instability. Although these conditions make many investors feel a sense of uncertainty anxiety, fear, or a sense of negative feelings, some investors perceive it as a chance.
But, if you’re looking to safeguard the investment value protect yourself from fluctuation, and get better returns, you must prepare a strategy for dealing with the volatile economy.
Also read: Top 10 AI Cryptocurrencies for Investment
Why Crypto Is Especially Vulnerable
Economics is a complicated subject and numerous sectors that make up the market are connected. When there is substantial volatility in one part of the economic system, different sectors are likely to be affected in the same way.
The cryptocurrency industry is particularly susceptible to fluctuations, and because of a number of reasons:
Crypto speculation has slowed down a little although there are thousands of people who consider the cryptocurrency market an opportunity to play, a gambling machine, or a make-wealthy quick plan. They are quick to buy and sell coins in order to make the highest amount of short-term profit feasible. In the end, their actions tend to cause a flurry of change in the crypto price.
These actions that create volatility could become self-sustaining. When thousands of buyers decide to invest in a cryptocurrency and increase the price. If other speculators are watching the price rise they are more likely to sense an upward trend, which can encourage buyers to purchase more, and the cycle continues. This type of speculative effect is masked in other markets due to the high volume of trading derivative products, derivatives, and even market circuit breakers however, in the world of crypto it is a more pronounced result.
It’s a relative thing since it is typically in comparison to normal conditions based on historical precedent. In the cryptocurrency world, there’s no history to base it on. There is a lack of clarity about the meaning of crypto in the wider context of economics. There isn’t any clear consensus regarding what the future holds for this form of currency. Therefore when people are impacted by the volatility of the economy the focus is shifted to crypto. This includes both pessimists and optimists who push and pull to make crypto more unpredictable.
Demand for Liquidity
Furthermore, in volatile economic conditions, smart investors tend to prefer to invest in solid assets. For a lot of people, money is the king. The crypto investments are often viewed as a waste of money. In this way, investors typically are ready to sell their crypto holdings to finance purchases of other assets or keep the cash they have in hand.
How to Secure Your Crypto investments in a Volatile Economy
So, what measures can you take to secure your crypto investments in the event that the market is unstable?
Identify and objectively measure volatility indicators.
It’s beneficial to identify and measure objectively the indicators of volatility that you believe are significant. There are many volatility indicators that help you determine the relative volatility of particular markets. It is also possible to look at past prices, volume of trading, and other indicators to determine if current conditions are considered to be volatile. This is a subjective matter therefore it is crucial to determine your own standards.
Switch to a cold wallet.
The crypto “cold wallet” is a secure storage space for your crypto distinct from the majority of exchanges. For instance, you could keep your crypto cold in an ordinary flash drive. While this may not affect much on the volatility of crypto, it can be an effective psychological tool to stop you from continuously monitoring the value of your crypto holdings. It could also stop you from making purchases or selling quickly. Additionally the security and privacy advantages of cold wallets.
Select your exchanges carefully.
If you decide to go with cryptocurrency exchanges, select those exchanges with care. Choose an exchange that has low transaction fees, total transparency, easy-to-use functions, and lots of details. This will allow you to be sure to do all of your research.
Also read: Best 5 Platform to Exchange Your Cryptocurrency
Make a plan for the long term.
The most effective method to approach cryptocurrency is to think of it as a long-term investment. There’s nothing wrong with participating in an investment market as speculation but it is by definition a risky venture. It’s not likely to have an effect on your investing strategy if you plan all your decisions on a 30 or 40-year horizon.
Consider different coins.
Bitcoin is, without doubt, the most well-known cryptocurrency, however, it’s by no means the only option. It’s not the only one. In many ways, it’s far short of its closest rivals. The crypto markets share a bit of DNA, which means that volatility in one type of coin can influence other coins. But you can shield your portfolio from at least some of the volatility by being exposed to a variety of different coins.
Practice dollar cost averaging (DCA).
dollar cost averaging (DCA) is the method of purchasing a set size of a commodity in regular intervals and thereby reducing the impact of volatility. If you purchase a large amount of an asset at one time, you are in danger of purchasing it at a cost that’s too high. If you purchase the exact quantity of assets each month, your starting point will be averaging to be sufficient. It’s the same regardless of how volatile the markets may be during the time.
Stay up to date.
The volatility is typically a result of important economic circumstances. It is possible to predict future fluctuations in volatility in crypto by reading carefully the reports and acting in the event of a possible change.
Importance of Diversification
One of the most crucial strategies to protect yourself from any type of financial volatility is to diversify. Diversification refers to spreading your assets and balancing your overall portfolio to shield yourself from sudden changes in any particular area.
Diversifying your investments involves holding diverse kinds of assets. This can mean holding bonds, ETFs and stocks, real estate, alternative investments along crypto. In this way, in the event that the market for crypto is completely unstable, You’ll have ample options to ensure your portfolio is secure.
It is also worth thinking about diversifying your holdings in currencies. If you’re like many investors, the bulk of your investments are USD and some are in various cryptos. But what about other currencies? What number of cryptocurrencies are you currently having?
Streams of income
It’s an excellent idea to diversify your sources of income, particularly in the event that you’re approaching retirement or already retired. If you’ve got one part-time job and dividends from stock, generate passive income from rental properties and a side business the risk of economic instability is unlikely to have a major impact on your earnings.
Economic volatility is a constant fact, but it’s typically an intermittent one. In the present era of fast-evolving technology, a rift in the culture, and the looming threat of uncertainties, the global market seems to be more volatile than it normally is. If you’re willing to take some precautions and adjust your strategies to a degree, you might not only be able to survive but prosper in these turbulent situations.