“The magnitude of volatility in the crypto space is unimaginable and investing for the short term can be an extremely risky venture. There are a few methods that are being used by the most conservative investors and are worthy of discussion.”
Need of a Conservative Approach
The crypto industry is well known for its volatility and even the most experienced traders dread messing with this volatility. For a trader, volatility might be a great thing but for an investor, it can create panic as half or even more value in the portfolio can vanish in hours or even minutes. But as it is a well known fact that investments always grow in the long term provided the investment is made in a good company or a project. Thus, there is a need to adopt a conservative approach for investing in cryptocurrencies.
3 Best Approaches
There might be other approaches as well but below are the 3 most suited and proven approaches that are conservative in nature and applies to the crypto investing as well:
Dollar Cost Averaging (DCA) Method
The Dollar Cost Averaging Method is an approach in which a fixed or variable amount is invested in cryptocurrency of choice at a fixed interval of time. The time interval can be on a daily basis, weekly, or monthly or as chosen by the investor. This method ensures that the investor is not affected by the price fluctuations of the market and if the market falls, more crypto coins are brought in the amount invested and vice versa. But, in the long term the investment averages out, thus beating the volatility in the process. This method also helps in accumulation of large amounts of crypto with very less amount of money over a long period of time.
Investing in Crypto ETFs
There are a number of Bitcoin and other crypto ETFs being launched and in the process of launching that provides an opportunity for the investors to invest in cryptocurrencies for the long term without actually buying them. ETFs act like funds in which the investors invest and these funds are then used to buy the cryptocurrencies by the fund manager. The ETFs are the owner of the BTC and the investors are provided with the share units of the fund according to the amount invested by the investor. This helps in reducing the risk of investing as more sophisticated and experienced fund managers take the investing decisions and accordingly it reflects in the price of the share for the investor.
Hedging is a way of preventing losses in the future by locking the price of the trade at the fixed price and at a fixed point in time. Futures contract is like a forward contract; that puts agreements between two traders that oblige one trader to buy or sell an asset at a certain time, quantity, and price. This helps in ensuring an investor to set the value of his asset at the future date. If the price increases at the future date, it is the profit of the buyer and if the price decreases, it acts as the hedge against the loss for the investor.
Disclaimer: The article is just to provide information and shouldn’t be considered as any financial advice. It is advisable to conduct thorough research before investing in any cryptocurrency.
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