How to Protect Investment to Focus on Bitcoin Trading
Since the beginning of 2021, the value of Bitcoin has almost doubled. Obviously, the boom is not over. More and more investors are buying BTC, but it is still notoriously volatile. Experts have different opinions about the future of cryptocurrencies. Despite the soaring popularity, a reversal is always possible.
Traders need to protect what they have. Those who fail to do it expose themselves to excessive risk. There are different ways to keep losses in check. Here are three proven methods.
1. Build a Diversified Portfolio
Diversification is the cornerstone of any investment strategy. Never rely on a single asset, as it exacerbates the risks. Instead, spread your funds across a number of instruments (preferably, unrelated). For instance, you could have a set of crypto coins, conventional currencies, stocks, and derivatives. As Bitcoin is so volatile, diversifying is vital.
What if the market moves against you? Your BTC trades will bring a loss. If you have invested in other markets, the profits will compensate for some or all of the financial damage.
2. Invest through an ETF
You do not have to own any coins. Instead, consider derivatives like ETFs. Exchange-traded funds do not require a wallet on a BTC exchange. They are easier to trade and more secure. You need not worry about losing the password. Overall, ETFs are a great way to diversify your portfolio.
The price of a Bitcoin ETF moves in line with the coin. Essentially, you invest in cryptocurrency in a way similar to stock trading. At the moment, this is impossible in the United States, but citizens of Canada and the EU are free to do it.
At the same time, there are CFDs (Contracts for Difference). They are similar to ETFs, but the risks are higher due to leverage. Every CFD is your contract with the broker. If you open a long position and Bitcoin rises, you make a profit. In the US, the instruments have not been officially approved.
Leverage requires caution. If you trade on margin — i.e., using borrowed funds — a loss can wipe out your balance. Beginners should definitely avoid this tool.
3. Consider Crypto Stocks
This is the safest way to capitalize on the BTC market. Here, the term ‘stock’ refers to an entity engaged in the exchange. At the moment, you may purchase stocks from companies like Tesla, Square, and Salesforce. For such solid organizations, cryptocurrency investment is only a part of their strategy. In the long term, they are expected to perform well regardless of the dynamics in the BTC market.
Keys to Safer Investment
Remember that no investment is perfectly safe. Bitcoin is attractive because of its spectacular growth, but the risks are also substantial. With a solid risk management strategy, you will only lose what you can afford. Spread your investment across a range of instruments — direct and indirect.