Investing in cryptocurrency is becoming a popular financial alternative to gaining passive income despite requiring users to invest time for strategic purposes. This activity ensures investors considerable returns in the short term, but it comes with significant risks. At the same time, investing for the long term is much safer but lacks considerable outcomes.
There are many methods of investing in crypto that work best in accordance with the risk level of one’s preferred digital coin. For example, if you want to learn how to buy crypto like Ethereum, you must prepare to withstand massive volatility due to its ever-changing popularity on the market. Lately, Ethereum has experienced an increase in value due to the approval of ETH ETFs, but it also had its bad times. When the FTX exchange collapsed, Ethereum’s price and most cryptocurrencies flopped.
Therefore, Ethereum can be more or less risky depending on several external factors, but this depends on the investors’ preparedness. So, here’s how to protect your portfolio.
Choose cold storage instead of hot ones
Typically, there are two types of storage ―hot and cold. Hot storage translates into software, meaning you use the internet to access funds and withdraw money. Wallets on desktops and mobile phones are frequently used, but they’re significantly risky as hackers can breach your accounts more efficiently.
On the other hand, crypto cold storage does not require an internet connection to operate, so you’re more protected. Such storage usually comes in the form of a similar device to a USB drive, but it can also be used with simple paper.
There have been several reported cases of stolen Ethereum through hot wallets. One of the most interesting ones happened in 2023 when a hacker stole 4997 ETH from HTX Global and chose to return it shortly after. However, this was one of the cases with a happy ending.
Diversify your portfolio
While Ether is a great investment for the long term, it cannot protect your portfolio alone from volatility spikes. Therefore, you must research various cryptocurrencies and add them to your portfolio to balance Ether’s prices. Depending on every changing season, altcoins, including Ethereum, can be more or less valuable than Bitcoin altogether, so investing in more coins is advisable.
Some of the most popular altcoins include the following:
- Binance coin was created by Binance and is a utility token;
- Solana has a unique blockchain mechanism;
- Dogecoin is a meme coin and is influenced by online attention;
- Avalanche is a cheap and fast alternative to Ethereum;
There are many other types of tokens you could use for diversification, but it’s notable that their value changes over time, and some can become obsolete. Hence, regularly changing the assets is best.
Hedge Ethereum
Hedging is an investment strategy borrowed from traditional financial markets, but it’s also efficient in crypto. It implies investing in crypto by entering and exiting certain positions to mitigate losses and lower your exposure to risks.
If you want to hedge Ethereum for a mid-term period, such as a few weeks or months, you could use futures, while short positions offer you a varied number of possibilities through derivatives and futures. Perpetual swaps are also profitable, especially on exchanges.
However, hedging requires more time spent researching your options and developing the best strategy for entering and exiting. While there’s no fixed measure for it, there’s a lot of valuable advice online.
Follow old advice
Regardless of the type of investment you aim to pursue, whether traditional or crypto, you must remember to never invest more than you can afford to lose. That’s an old saying, and it applies to crypto considerably because these coins can lose their value overnight due to hacking events or new government policies, so there’s no certainty around their prices.
Therefore, you’re never sure whether your assets are gaining stability or are safe, which is why being cautious with the money you invest is adequate to ensure success. We know it’s easy to be caught up in an emotional frenzy due to optimistic investor sentiments, but controlling your emotions is necessary if you want to avoid losing everything.
Most investors are affected by FOMO (fear of missing out), which happens when prices increase and flop as well. They fear their portfolios will become obsolete or they’ll lose the opportunity to make more money. However, remember that Ethereum is a recent digital asset and is objectively volatile, so always be careful when investing in it.
Avoid bias
Cognitive biases are very dangerous for everyone, including investors, because they bet all their money on a subjective thought influenced by external factors. Numerous biases interfere with an investor’s behavior, such as the following:
- The herding effect makes people follow the actions of a group because the decisions of more people seem genuine and based on certainties;
- Confirmation bias happens when we prefer the information that reinforces our beliefs, such as trusting a crypto adviser who has the exact same thinking;
- The overconfidence effect makes people make wrong decisions by being too confident in their abilities, exposing them to risks;
- The loss aversion bias makes people ear losing their investments more than the benefit of gaining, making them sell everything;
- The anchoring bias influences our future decisions as we base them on singular past information;
As you can see, numerous biases affect our investment capacity and can happen without you realizing it. However, this is why you should take your time pacing your investments; taking it slower can help you identify these patterns so you can change and make a decision objectively and based on continuous research.
What do you think about investing in Ethereum?
Ethereum is a strong cryptocurrency, second only to Bitcoin, the first and most used crypto coin in the world. It’s got an impressive blockchain and ecosystems, but its value is also significant. However, Ethereum is volatile, and prices can shift dramatically based on a series of factors, from the market’s condition to global events. Hence, you must invest in it with considerable caution and patience.
