Introduction: Why is Risk Management Relevant?

So you’ve jumped into crypto. You’ve poked a wallet down with some money, looked at some exchanges, and you’ve definitely seen people hollering about “the next 100x’.

Feels exciting, doesn’t it? But ugly reality intervenes here: it is very easy to earn money in crypto but much more difficult to retain. We don’t discuss as much about losses via hacks, scams, or even via downright panic-sells at just one unfortunate moment. Of course, it happens more frequently than you would think.

Let’s talk about crypto risk management. It’s dry material, but it makes or breaks whether you’re still standing tall 5 years down the road, or bailing out in a fit after the next downturn.

The Essentials of Crypto Risk

Crypto is an unconventional market. Rollercoasters by definition are unconventional.

• Volatility: You can pump a coin 30% a day then nuke 40% next. Stocks don’t move that aggressively.
• Tech risks: Exploited smart contracts, breached exchanges, and backfiring staking with slashing penalties.
• Human risks: Forgetting your seed phrase (yes, people lose millions doing that), falling into phishing letters, or buying into hype.
• This is what it is: You can’t kill risk but you can only manage it. It’s a bit comparable to being behind a wheel wherein accidents might occur but putting a seatbelt on and never changing down a rain-soaked road greatly diminishes your chances of wrecking the car.

Diversification: Do Not Put All Coins into a Basket

You’d think everyone knows this, yet countless beginners learn it the hard way.

• By asset: Don’t invest all your assets into a single altcoin. Save some Bitcoin, some Ethereum, some altcoins that you believe will survive, and some stablecoins as well.
• By platform: Be non-platform-specific. Use centralized (CEX) and decentralized (DEX) services with a cold wallet for holdings that you’re storing for longer periods.
• By strategy: It’s okay to HODL but don’t HODL by yourself with a dash of staking, perhaps some yield farming if you’re qualified.
• Stablecoins? They’re unexciting but they’re your currency emergency stash. When markets fall, you’re going to be glad to have some.

Security First: Protecting Your Keys and Wallet

• Let’s be real: Most wait until they’re hacked or scammed to take security seriously. Don’t be that person.
• Wallet hygiene: It’s okay to use it daily for a hot wallet but cold storage or a hardware wallet is where your long-term cache is.
• Seed lines: Write it into a document, keep it safe, don’t screenshot it, don’t Google Drive it.
• Exchange accounts: Always enable 2FA. Always.
• And crypto’s golden rule: Not your keys, not your crypto. If you’re storing your entire crypto stash on an exchange, you’re begging for trouble.

Market Cycles: How to Align Bull or Bear Strategies

Markets never go in a linear fashion. They breathe and it calls for different strategies according to the cycle.

• During bull runs: Sell and seriously take profits. Don’t sit back watch your portfolio grow then ride it down because you thought to yourself it’s going higher.
• During bear markets: Don’t keep panicking-selling. Instead dollar-cost invest into good projects. Fortunes are made during bears but you don’t believe so then. 
• Think about it like a surf session: Bulls would be waves and flat water where you paddle and get yourself pumped up for your next set.

Managing Risks with DeFi and Staking

It can be incredible with DeFi but a minefield as well.

• Start low: Don’t invest one’s entire deposit into some fleeting yield farm. Try starting with low amounts to start with.
• Deal with trusted sites: If you never even heard about it and APY is absurd then most likely it is a scam.
• Recognize the risks: Liquidation if you’re a debtor, impermanent loss if you’re a liquidity provider, slashing if you stake impulsively.
• Liquid staking tokens: Good idea but a two-edged sword. Yes, you have liquidity but higher risk.
• Work with DeFi just as with swimming: Get your toes wet first.

This is the hardest part about crypto, not charts, not tech, not even scams. It is YOU.

• FOMO: Don’t chase pumps. Once it’s moon’d once, you’re behind,
• FUD: Don’t sell all your holdings on a bad headline. Much of “Crypto is dead” news is retreaded fear.
• Rules: Plan your stop-losses in advance, take profits levels, and be disciplined.

Easier said than done, I agree. But discipline is what turns ruined traders into survivors.

Writing a Beginner’s Friendly Risk Plan

Here’s a straightforward, no-holds-barred.

• First things first, get your wallets.
• Diversify platforms, tokens and strategies.
• Allocate wisely maybe 50% long-term holds (BTC/ETH), 30% staking/DeFi, 20% stablecoins.
• Quarterly crypto review is fast, don’t set and forget.

Not polished but very practical.

Case Study: The Tale of Two Newbies

Let’s be frank here:

Novice A invests his entire savings into one altcoin in 2021. Has ridiculous gains, never takes profits, brings it down to pennies in 2022. Portfolio is 90% down by 2023.

Beginner B invests in Bitcoin, Ethereum, some altcoins and 25% in stablecoins. Take profits during a bull run and in bear, buy BTC low. In 2023, still standing.

Same market but different destiny. Why? Risk Management.

Conclusion: How to Succeed Safely in Crypto

Crypto is crazy, it’s either going to disrupt your entire life or drain your wallet. Why? Risk Management.

Diversify, anchor down your security, be disciplined regarding emotions, and stick to a plan, then you will make it through market cycles but you will triumph through them.

Mind you: Protect first, then benefit.

Want to be Accountable for your Crypto Experience?

Avoid green candles, cover your profits. Begin applying these risk management strategies and create a portfolio that would be capable of riding through any tempest.

FAQs

What is crypto newbies’ worst enemy?
Falling for scams or putting everything into hype coins without doing any research.

How much percentage to invest into stablecoins? 
Depends, but 15-30% is a reasonable estimate. Leaves you some leeway if markets decline.

Will diversification make a person completely risk-proof?
Not right away but it spreads out the risk so a bad exchange or coin doesn’t take you down.

Staking is risky for early market participants?
Yes, if you’re dealing with established platforms. Just be okay with lock-up risk and slashing.

How often should I rebalance my portfolio? 
3-6 months, or even more often if needed, the market fluctuates too much.

This article is contributed by an external writer: Razel Jade Hijastro.

 
Disclaimer: The content created by LBank Creators represents their personal perspectives. LBank does not endorse any content on this page. Readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor can this article be considered as investment advice.