While some have made millions from bitcoin trading, many have also lost millions. This is why every bitcoin trader would be wise to brush up on some valuable bitcoin trading advice.
Bitcoin remains a very volatile asset. Within the 30 days between May 1 and May 31, 2021, bitcoin’s price dropped by 36%. Go back to 2018, and between January 6 and February 6, the price dropped by 65%.
Apart from volatility, there are two other issues that should concern the bitcoin trader: high fees and security.
A platform like Coinbase charges 1.49% per transaction. Multiply that by the number of transactions you do per month or year and the figure can become significant.
On the security front, there have already been numerous high-profile (and highly unfortunate) cases of people losing their passwords and wallets to hackers.
Given these three bitcoin problems today: high volatility, high fees, and insecurity — what can you do to minimise your risk and protect yourself in the bitcoin market? If you are a bitcoin holder, these 3 following tips are essential.
1. Have a long-term strategy
Warren Buffett has long held that the main reason why people lose money in the stock market is the fear and greed cycle. Many investors buy stocks when others are buying (greed) and panic-sell immediately the market becomes bearish (fear).
This same fear-greed cycle afflicts many bitcoin traders. They don’t have a definite plan; rather, they swim with the tides — which ultimately sinks them.
To avoid such losses, ensure you have a long-term strategy. In the long term, the market rises more than it falls and the risk of losing money is reduced. As of December 22, 2020, no matter when you bought bitcoin from 2009-2017, if you waited for at least three years, you would have made money.
Put simply, the longer you wait, the more the likelihood that you will make money and the less the probability that you will lose it.
Another advantage of sticking to a long-term strategy is that you incur less transaction fees as you don’t have to trade as often as those with a short-term focus.
2. Use a trustworthy exchange with secure wallets
Though cold storage is the most secure, it can be unrealistic for retail investors who want to trade.
If you use hot storage, ensure you get access to the most secure exchange platform. Before registering on an exchange and getting a wallet from them, do your due diligence and ensure they have excellent security protocols.
If you embrace the long-term strategy, you can get better security by moving your bitcoin from hot storage to cold storage and then move it back to hot storage when you are ready to sell.
3. Diversify
Today many financial experts advise that your investment in cryptocurrency should not exceed more than 5% of your total investable assets.
In other words, don’t put all of your money in bitcoin. The prospect of making more money by investing more money is scintillating but the risk of investing a huge amount in a volatile asset like bitcoin is very high.
Instead, invest in other assets like stocks, bonds, and REITs to minimise your overall risk.
A platform like Sarwa will help you create a diversified portfolio of stocks, bonds, REITs, and bitcoin (with up to a 5% allocation) that reflects your risk tolerance and time horizon. They also use the Modern Portfolio Theory to ensure that your portfolio allocation minimises your risk and maximises your return.
In summary, to avoid losing to bitcoin’s volatility, high fees, and security concerns, invest for the long-term, use a trustworthy exchange, and diversify your investments.
