How to adopt a balanced approach with your crypto assets?
Our relationship with crypto assets is emotional and derived by our needs, wants and ultimately the fear of missing out (FOMO). “Lack of effective digital asset management skills can put a strain on your pockets and even restrain your perspective in life.
A well-known Bitcoin Core developer Jimmy Song has suggested a balanced approach to managing one’s crypto assets. Song recommends taking the slow-and-steady approach, which is what he recommends when it comes to dealing with one’s cryptocurrency portfolio. Song elaborated: “The good thing about building your wealth over time is that it teaches you a lot of good habits.” The Bitcoin developer added that you build your wealth up slowly which gives you the discipline, and know-how, and wisdom to be able to keep that wealth.”
Ultimately, we should live within our means and ensure that our crypto assets are managed in accordance with the current crypto market situation as we tend to hear about the massive failures or people who lost a fortune on an ill-advised cryptocurrency investment.
In the below post, we take a look at some effective ways of managing cryptocurrency risk as well as some tips that will help you make the right decisions when investing in CubeBit. With CubeBit’s venture plan, you can be sure that you are in a good connection to your crypto assets as we aim to meet each investor’s expectations by offering strategies ranging from basic to most advanced solutions in digital asset management.
Don’t Let Hype with Cryptocurrencies Drive You
One of the greatest enemies to successful investing is possibly your own human impulses. You have to avoid some of the raw impulses that we may feel such as “FOMO” (Fear of Missing Out). When someone is creating decisions based on whether they could be “too late to the party” they tend to establish in a cryptocurrency asset that they may not know much about or one that could be reached a peak.
This advisory tale indicates that you should not automatically expect that old-time trends will remain forever. Always be careful of imminent corrections in the price of the cryptocurrency that could come unexpectedly.
This could also take place in the ICO space if you invested in an overhyped ICO. Although your analysis states that the project does not really warrant an investment, you may still be induced to invest based on the amount of press that has been thrown out around with regards to the Initial Coin Offering.
Diversification is Key
It has been one of the most well-known investment philosophy for almost a hundred years. Keeping all your eggs in one basket is placing a lot of faith only on that basket. This is as real for cryptocurrency as it is for any other asset. If you put all your investments in one particular token, you are taking the biggest deal of “idiosyncratic risk”. Idiosyncratic risk is a term that has been utilized in traditional finance to detail risks that are not systematic across an asset class or sector.
When you are invested in more than one crypto assets, the idiosyncratic risk in your portfolio reduces. As you keep multiplying in more other coins this unique risk will fall. Theoretically, one would think that an investment in nearly all crypto assets would be a good move for better results.
Focus on Strategies, not Tokens
Sometimes crypto investor just got carried away and invest in a crypto coin or token simply based on achievement and performance or the rumors/buzz around the coin. It is essential that you concentrate on the idea rather than only the token or the start-up. There are various coins that operate in a particular field which you can spread your risk out. For example, you have Ethereum and NEO which are both tokens that are center on smart contract technology.
Once you have confidence in a certain idea of venture options, then you can begin automating your crypto assets out among all of the particular coins within that plan to get the diversification that you are comfortable to make the best out of your crypto adventure.
Hedging With Other Form of Assets
Although investors may be quite optimistic on cryptocurrencies, once you have a massive percentage of your portfolio in your crypto assets it gets more difficult to control cryptocurrency risk in general. This is where other digital asset classes could come in handy.
If you want to put a wall on some of the systematic cryptocurrency risks in your portfolio then you could seek at assets that have a high negative correlation with cryptocurrencies. This would usually be assets such as stocks as they are seen as “risk-loving” assets.
The other advantages of using traditional assets to hedge the crypto risk are that you can utilize a host of derivative instruments such as options and futures. These derivative investments are relatively more obtainable, as they are accessible even without funds. They only require minimal collateral to hold them.
The possibility of Mining Crypto Coins
Most of these methods of managing your relationship with cryptocurrency risk are aimed at reducing the risk from fluctuations in price. However, contrary to dividend-paying equities or interest paying bonds, most crypto coins will not provide you a cost of reward for holding them as they rely on Proof of Work mining. This is when a miner will create a mining rig and solve cryptographic hash functions for producing more coins. These are now so extremely competitive and costly that one can’t just set up a home PC and mine the crypto coins like they used to. The worst part is that the biggest problem of Proof-of-work is energy wastage.
However, some cryptocurrency is mined through a process called Proof-of-Stake (POS) mining. This is where coins would be mined based on the level of cryptocurrency particular people held. Therefore, if you hold a particular amount of cryptocurrency, you can be rewarded extra coins for “mining”. This would usually just require you just leaving the client connected while the coins were mined based on your stake.
Although the list of POS crypto coins is rather restricted right now, Ethereum will be making the move from a Proof of Work mining System to a Proof of Stake System with an improvement protocol called Casper. Ultimately, this will allow large Ethereum holders to mine the second most valuable cryptocurrency.
Get Rich Slowly and Steady Wins the Race
There seems to be a great amount of attention placed on getting rich immediately in their crypto journey because they want to indulge in their desires. There is this belief that you can find a coin to invest in and you will triple your investment in just a month. However, these kind of investors are not really the ones that have made massive returns.
The early investors in Bitcoin who acquired in 2010 and 2011 believed in the idea of digital asset management and not really how much money they could make. They were of the view that Bitcoin would revolutionize the world of finance and therefore had an essential value on many industries. Hence, the enlargement of Bitcoin investment scams and get-rich-quick schemes also affects the industry.
Many investors are in “a hurry” to get rich — which is why they ultimately “become poor” and stay that way. To be a successful crypto investor, you should have a parallel mindset. Believe in the ideas, belief in your investments, manage your cryptocurrency risks and focus on the future.
