If there is a business, then there will be a risk too. No one can think of a business without risk. However, there are ways to mitigate the risk, and it implies in cryptocurrency also. While investing in cryptocurrency, you need to measure the risk appetite and plan to reduce the threat. There can be various types of risk available in the digital currency. Few of them are given below and let us try to identify ways to reduce the impact of such risk.
1. Marketed Hype Risk Management
The hype is created due to marketing, and the logic to enhance the value of cryptocurrency is not convincing. Therefore, one must be aware of the hype and try to research extensively on the particular currency from various authentic sources of information. You must not trust an email received by you or information given by someone else. Many people may not have the correct information and they might pass it to you without confirming the story. Investors may get trapped in believing such hype and lose the money. Therefore, you must be careful about your investment.
2. Safety Risk Management
As you know that this cryptocurrency is traded or transferred online, and being online, the wallet is exposed to hacking for theft. There should be proper precautions to avoid hacking, and there are so many ways to keep the wallet safer. We can use that kind of security measure to save the wallet from the numerous scams. A paper wallet is thought to be best, or you can keep wallet offline so that the chances for larceny will be lesser. Ultimately, your digital currency must be safer and secured by any means of technology or personal care.
3. High Movement Risk Management
There is huge volatility in Bitcoin and other Altcoins, which expose the investment for both risk and reward. In the case of unfavorable market direction, it may lead to insurmountable losses. We have seen many times that the price of Bitcoin decreased largely. Since there might be adverse volatility in cryptocurrency, you have to take precautions in such movements to avoid all-out losses. You can think to sell off the portion of the cryptocurrency or it can be converted to another digital or fiat currency.
4. Liquidity Risk Management
Liquidity risk means when you want to convert your cryptocurrency into another cryptocurrency or Fiat currency, and you are not able to do then this is liquidity risk. Bitcoin, Ethereum, and Unicoin can be converted to cash easily and these digital currencies can be considered for investment purposes. However, you must analyze the pros and the cons of any digital currency before investment decisions because that currency must be viable in the market. More the liquidity means less the risk.
5. Disappearing Risk Management
We have seen numerous cryptocurrency claiming to be the best with their offers, but most of them vanish within 2 years of operation. Therefore, investing in such cryptocurrency or ICO will be one of the great risks to take at the initial level. It would be best if you take time before rushing into questionable offers. Those offers may not have a solid base to sustain in the long run because of a lack of vision, funds, technology, and risk management system. The money will be vanished or lost if you are unaware of such disappearing risks. You need to research properly about the cryptocurrency and its base on the launch of the company.
6. Regulation Risk Management
The regulation is a major risk. Sometime when you do not have adequate knowledge, then the only one reasonable option you have to trust is the government organization, which regulates or supervises the business activity of any company including crypto-related organization. So, you can check with your land of law if that allows you to participate in cryptocurrency for investment purpose or not. You should be acquainted with your country’s law for investing in cryptocurrency, as it may be a regulation risk for your fund.
The above discussion may conclude that there are so many formats of risk in cryptocurrency, and each format of risk has the potential to make a loss. Therefore, you need to have proper plans to manage such risks so that your digital currency or fund should be held protected in your hands. You have to cram the risk aversion techniques further in detail for any unwanted and unpredicted loss.