Through cryptocurrencies, people can earn by trading, mining and investing. However, it should be noted right away that each of these options has very high risks of defeat, not only because of high volatility, but also because of the risks of fraud.
Because of this, it is rather important to be careful when trading in the market, and this can be done only by minimizing the risk.
For example, on the topic of mining, BitCluster founder, Sergey Arestov, notes that it is not magic at all, but a real business. Therefore, it is quite logical to expect both a victory and a grandiose failure. And, as with any business, reliable partners are key to efficiency.
Cryptocurrency mining involves the purchase and maintenance of equipment or hardware, as well as the rental of premises. Each stage in this segment carries certain risks. For example, the equipment may be of poor quality or broken.
Arestov defined a number of rules to help avoid losses:
- You cannot purchase equipment based on exotic or new algorithms. You need to understand that it will quickly become outdated, and the coin will become tenfold in price.
- Equipment that was brought in illegally should be avoided. In this case, you can easily fail at the first check.
- It is extremely naive to buy prepaid devices based on an ad. This naivety or excessive gullibility will play a cruel joke with the “coin miner”.
- You should never spend all your money on mining at once. In other words, it is extremely unreasonable to pin all hopes on this method. It is better to buy equipment gradually and improve your strategy at the same time.
- No need to rush to connect your equipment to expensive electricity. In the end, it’s just not profitable.
- It is good to try to avoid the unrecognized republics.
- Mining should not be confused with trading. In short, you should not mine coins and postpone their sale, betting on the growth of the rate.
- Storing large amounts of money in online wallets is a bad idea.
- You should forget about buying equipment that will be delivered in six months. After all, until it comes, the complexity of mining will grow many times over.
- You shouldn’t exchange cryptocurrencies online.
How about investing? Here, too, there is an arsenal of “chips” that any successful investor must not neglect.
Investing is generally recognized as one of the most understandable ways to make money on cryptocurrency. The main thing here is to understand that simply buying any cryptocurrency in order to make a profit is not enough. High volatility and many projects reduce the chances of income, mainly because miscalculation is very possible. For example, you could wrongly invest in coins that may not grow or simply depreciate.
Nikolay Klenov, an analyst at the Raison Asset Management, gave advice on how to make an effective investment.
First, it is better to diversify, or, more simply, not to single out any one asset: be it Bitcoin or Ethereum. It is important to form your investment portfolio, consisting of different cryptocurrencies.
Second, it is necessary to manage risks, that is, to control the volume of entering a position, to limit losses (stop losses). Here, it is important for an investor to immediately determine what part of his own funds he is ready to lose. Loss of an investment portfolio by 20-30% is quite normal and not at all fatal, but if the portfolio “drawdown” reached 50-70%, then this is already a problem (it is extremely difficult to win back such a position) …
Third, you need to invest long-term. With cryptocurrencies, investing for 3-5 years or more is the most sane decision. Speculation or scalping in this area is likely to fail.
Fourth, it’s better to keep your finger on the pulse all the time – to study assets and the market itself.
And lastly, trading. There is nothing to do without some knowledge on it and experience.
Trading classic assets is extremely difficult and not always justified. It many risks failures, griefs and unfulfilled hopes, because in just one day, the market can grow and fall by tens of percent. Therefore, the liquidation of positions on crypto-exchanges for hundreds of millions of dollars is not a rare occurrence.
So, minimizing risks is possible when trading on any type of market. However, learning risk management is very much advisable, as such allows you to reduce the possibility of losing your deposit. Vladislav Antonov, an analyst at IAC Alpari, advises to, first of all, identify the risk for the transaction and, as in the case of investing, be prepared for certain risks.