The crypto market has made a reputation for being a highly volatile financial sector over the years. Currently, it is going through one of its worst periods in history. As a result, extreme price fluctuations are more common and tend to do more damage to casual investors.
Nevertheless, it doesn’t mean you should put your crypto portfolio on standby at the first gust of volatility blowing through the market. On the contrary, you can protect your investments and even thrive in the long run. Here are three ways to do that!
Research Protocols Before Investing
You can only do so much to protect yourself against the insane volatility in the crypto world. However, as an expert trader would confirm, your best choice is to do your due diligence before opening your crypto wallet. The more you know about a protocol, the smaller the risk of losing substantial funds.
Nowadays, crypto projects surface in the market by the hundreds every week. Identifying the next Solana or ApeCoin is almost impossible. Every crypto investor dreams of discovering the next big crypto sensation in its early development stages. After all, who doesn’t want to buy tokens worth merely a few cents and sell them when their price has four digits?
Still, you should keep an eye out for suspicious projects during extreme volatility. Some protocols enter the market with the only goal of scamming investors. So, be aware of ventures that seem too good to be true or look like get-rich-quick schemes.
One of the most popular scams is the rug pull, in which developers lure investors into a seemingly promising project before disappearing with their funds. This tactic is similar to the pump-and-dump scheme, where influencers pump the value of a token to attract massive investor support. However, as soon as they amass substantial funds, they pull the plug on the project and dump the investors, who lose all their capital.
To avoid falling victim to one of these scams or extreme volatility, always research thoroughly new protocols. Make sure that they have an honest and expert team of professionals. Also, ensure that they have passed audits and KYC verification. Lastly, identify if their project’s roadmap is feasible and potentially lucrative.
Consider Gold-Backed Tokens
Another way to protect your portfolio from crypto volatility is to opt for stablecoins. These assets peg their prices on the blockchain to the real-world values of tangible assets. Some of the most popular stablecoins are backed by real and secure reserves of fiat currency, gold, and other assets.
This means that their prices are less likely to fluctuate out of control. More importantly, they cannot disappear into thin air through scams since their virtual amounts correspond to tangible, real-world reserves.
Many seasoned crypto investors use bear markets to add gold-backed tokens to their portfolios. They do so because gold is among the few assets able to withstand long periods of severe inflation and economic crises. So, while most financial sectors drown in value-plummeting bloodbaths, gold remains afloat and even thrives.
Gold-backed tokens are blockchain-based assets using the actual price of gold to have a virtual value. Generally, such a token pegs its value at a ratio of 1:1 to an ounce of gold. Also, the precious metal is in safe storage under the protection of a trusted guardian. This asset class allows investors to buy, sell, trade, own, and store gold without actually seeing or handling the precious metal.
For example, AABB Gold Token (AABBG) is a hybrid, gold-backed token from Asia Broadband Inc. (OTC: AABB), a resource company in the precious and base metals sector. The company backs 100% of its gold-pegged tokens with $30 million in physical gold. As a result, every AABBG token running on the Ethereum blockchain has a real-world correspondent in stored gold.
Opting for gold-backed tokens during high crypto volatility reduces your portfolio’s risk of severely dropping value. Also, it enables you to invest in an asset that defies inflation and financial crises.
Diversify Your Portfolio
Few crypto investors limit their portfolios to only one asset. Of course, you have the exception of hardcore Bitcoin enthusiasts who despise altcoins. However, they are on the brink of extinction. Every month, more and more tokens surface on the market, posing plenty of reasons to trust and back them.
Diversifying your portfolio is a good choice in times of extreme crypto volatility. After all, keeping all your eggs in one basket does not leave you too much room to trade and grow your wealth. Furthermore, you risk a severe devaluation of the only asset you hold, which could spell doom for your crypto investment efforts.
Start by researching the multiple asset classes in the crypto sector. Their number increases substantially once you look beyond the popular BTC and ETH. For example, you can opt for utility, payment, security, or governance tokens. Alternatively, you can consider stablecoins, which, as we established, have the backing of real-world assets. You have virtually endless room to expand your portfolio across the growing crypto market.
After setting your sights on a few assets, take the time to thoroughly research them. Examine their potential and check if their developers are trustworthy. Then, join AMA (ask me anything) events and online discussions to discover what others think about them. Lastly, open your wallet only when you are sure your chosen assets do not pose a scam risk.
Portfolio diversification is an ongoing process. For example, you don’t just buy 10 tokens, sit back, and relax. You have to monitor them constantly. While some may fluctuate daily, others, such as non-correlated asset classes, could barely move. Moreover, you learn as you go and withdraw or add other tokens, depending on their reliability and performance.
Try these simple methods to protect your portfolio against crypto volatility. Withstanding the current crypto winter is not easy. However, with the right movements, you can endure and even thrive through it.
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Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.