How to Avoid Risk When Investing in Bitcoin

Each year, more people are choosing to invest in the growing cryptocurrency market. Cryptos like Bitcoin are all over the media thanks to rising prices, and they present an excellent opportunity to make big returns. However, investing comes with risk, and crypto is no different. In fact, the risks involved in cryptocurrency investing are even greater, as the prices can be highly volatile.

Bitcoin price doesn’t always go up, it can experience crashes and big drops in value. These drops can occur in an instant, wiping out the value of your investment with little warning. The price volatility means you need to do your research before you invest and ensure you’re doing everything you can to avoid risk.

Why is the Price of Crypto Volatile?

Volatility is the term used to describe assets or markets which experience sudden changes in value. When you make an investment, its value of it can rise or fall depending on the conditions of the market. There’s no way to predict exactly what will happen, and crypto, in particular, can be extremely unpredictable.

The price of crypto is based on a lot of different factors, but the reason why it’s so volatile compared to traditional investing is often because of a lack of trust. Many investors don’t take crypto seriously yet because it’s still so new. When prices start to fall, they lose trust in their investment and sell, triggering the same response in other investors.

You can avoid volatility by looking for cryptocurrencies that aren’t as affected by price changes. However, there are other ways you can also avoid risk to ensure your investment is safer.

Avoiding Risk with Crypto Investments

There’s no way to fully remove risk, especially when investing in a particularly risky asset class. However, there are at least steps you can take to reduce it. Here are a few.  

Do Your Research

You should always do your research before making any kind of investment. Make sure you read plenty of independent sources about Bitcoin and other cryptocurrencies. You want to get a clear, unbiased view of what it is and what it does. You should also look at previous performance and see what experts are predicting. However, it’s important to remember that no one can fully predict what the market will do, so exercise caution.

Don’t Invest More Than You Can Afford

Another vital thing to consider is that you should never invest more than you can afford to lose. The money you put into risky investments should be money that you’re completely fine with losing. It’s difficult to lose money and not be upset, but it certainly shouldn’t be an amount of money that would ruin your life if you lost it.

Dollar Cost Average

Rather than investing all of your money in one go, most experts suggest dollar cost averaging. This strategy sees you purchasing small amounts over time, so you get an average price of the asset over a longer period. This is ideal for volatile investments like Bitcoin, where the price can be high one moment and low the next. It will ensure your total investment is at an average price rather than too high.

Keep Your Coins Safe

Once you’ve purchased your Bitcoin, it’s important to keep them safe. This isn’t like holding money with a bank where it’s protected in case of fraud. You’re fully responsible for the safety of your own Bitcoin. You need to get a wallet and use it to store your private keys. Never reveal these keys to anyone, and keep them in a safe place so you don’t lose them.