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If you’re invested in the booming digital currency market, you’ve undoubtedly noticed some wild volatility over the past few months. The last few weeks have been particularly rough for investors as the price of Bitcoin has fallen as much as 65% in a matter of days. While it can be tempting to sell your investments at the current low prices and lock in profits, this is detrimental to your long-term capital preservation strategy.
Volatility is inherent with any investment, but there are ways to manage volatility and protect your capital from unnecessary losses. This article explains some strategies for mitigating Bitcoin volatility risk and protecting your investment:
Don’t leave your bitcoins in exchange accounts
The most important step you can take to protect against the volatility of the digital currency market is to not keep your bitcoins in a regular trading or exchange account. These accounts are designed for short-term trading and are notorious for high trading fees, high market volatility, and liquidity issues. Instead, either hold your bitcoins in a cold wallet or a long-term investment account where you control the private keys to your bitcoins.
For example, you can use an online service like Meta Profit or a desktop/mobile wallet like Bitcoin Smarter App. By keeping your bitcoins in a wallet that you control, you’ll have more peace of mind knowing that you’re not at the mercy of the financial markets. This will allow you to make better investment decisions based on your research instead of relying on external factors like the market’s fluctuation. Furthermore, you’ll also have more control over your bitcoins as you won’t have to worry about the wallet provider holding onto your private keys.
Stay Educated
The best way to protect against volatile investment returns is to get educated about the investment itself and the market it’s trading in. This means that you need to fully understand the technicalities of the market you’re investing in. In the case of Bitcoin, you need to understand things like the mining process, the blockchain, transaction rates and fees, and the security of the network.
You’ll also want to learn about the broader market and how it’s influenced by government interventions like taxes, regulations, and monetary policies. It’s also important to understand investment terminology such as risk/reward ratios, inflation rates, and how to read a chart.
Only Invest What You Can Afford to Lose
This may seem obvious, but you’d be surprised at how many people keep trading in the hope of earning huge profits with little regard for their finances. Be aware of the amount of money you’re prepared to lose before you begin investing. Make sure you have enough savings available to cover any losses you incur. This could be a critical step to reduce the amount of financial stress caused by the volatile market.
Always look at the big picture
Try to understand the big picture of your investment. In the case of Bitcoin, you should understand the technology behind the blockchain and why it’s so appealing to potential adopters. You should also understand the market for Bitcoin and what its current dynamics look like. Investing in an unknown market means that you have limited information about it. You may know the price per unit, but you don’t know how it’s going to move or what impact government interventions will have on the market.
Keep your bitcoins in cold storage
If you’re planning to hold onto your bitcoins in a regular trading or exchange account, you should seriously consider keeping them in cold storage. This means that you only use your online wallet or a hardware wallet like a Ledger Nano S to access your bitcoins.
By keeping your bitcoins in a cold wallet, you’ll have more peace of mind knowing that they’re not resting on the financial markets’ shoulders. This will allow you to make better investment decisions based on your research instead of relying on external factors like the market’s fluctuation.
Conclusion
A digital currency market is a volatile place, and there’s no guarantee that Bitcoin prices will rise in the future. However, there are ways to protect your investment from significant losses and limit the amount of financial risk you take on by investing in the market. By keeping your bitcoins in a wallet that you control, you’ll have more peace of mind knowing that you’re not at the mercy of the financial markets. This will allow you to make better investment decisions based on your research instead of relying on external factors like the market’s fluctuation. Furthermore, you’ll also have more control over your bitcoins as you won’t have to worry about the wallet provider holding onto your private keys.
