Crypto Investment Guide: Maximising the Risk to Reward
An important aspect of investing in crypto assets is managing the risk to reward. Learn how you can maximise that in this article.
Despite the current economic condition, and given how the S&P 500 has been printing a downward trend in recent weeks, Bitcoin, has against these odds, showed some strength in its recent price actions.
Without a doubt, evidence has shown that Bitcoin has outperformed other assets such as gold and the stock market. With that said, there is no better time to consider a crypto investment than now.
Investing in crypto assets have gained more acceptance and momentum in recent years. Even institutional investors are jumping on board the crypto gravy train. In fact, PwC, one of the Big Four account firms, estimated that the global total asset under management for crypto hedge funds is worth approximately USD 2 billion in 2019; a 100 percent increased from the previous year (USD 1 billion in 2018).
In this article, you will discover how you can invest in crypto assets. Through educating and exposing yourself to crypto assets, you now have the option to diversify your portfolio.
The potential of crypto assets
Key findings of PwC economists, who have assessed the potential of the Blockchain technology, along with crypto assets, has the potential to boost global GDP by USD 1.76 trillion dollars by 2030.
Crypto assets such as Bitcoin and Ethereum, not only have the potential to reshape how we transact or how we interact with our current financial system but have an impact on how we invest or store values of our wealth.
One of the reasons why investors are drawn to Bitcoin and other cryptocurrencies is due to its scarcity. The number of users and addresses with more than one Bitcoin and 0.1 Bitcoin has increased in recent years. Furthermore, the number of average daily on-chain transactions was about 300,000 in 2019, compared to just over 5,000 in 2011.
Data as such indicates the increased adoption of Bitcoin. Without a doubt, Bitcoin is undergoing a slow, but steady institutionalization. Ethereum, on the other hand, powers decentralized financial applications that can provide financial services to anyone in the world with an internet connection.
Related: Is Ethereum a Good Investment?
Crypto assets offer us an alternative to fiat currencies. And unlike traditional money issued by the government or central banks, crypto-assets allow us to benefit from decentralization, transparency, and hopefully, paving the way for a new financial protocol that is more open and inclusive.
The risks versus rewards of crypto investment
Truth is, whatever pathway for investment you choose, they are bound to expose you to some risk. This risk is ideally balanced between highs and lows – but more importantly – it should be a calculated risk.
Calculated risk means you have taken the time to consider and weigh your options and understand what you are getting into. This also means setting an ideal time frame for your investment plan. This way you’ll be more resilient to volatility.
Crypto assets are generally labeled as high-risk investments. This is because the crypto market is still relatively young and prices have a tendency to fluctuate. However, the rewards can at times, also be lucrative as evidenced by historical returns. You should take note that historically, performance does not necessarily equate to future results.
What is a common crypto investment strategy?
First and foremost, when it comes to any investments (including crypto), the best practice is to conduct your own due diligence and research an investment approach that is suited to you. There is no one investment strategy that will work for all users, so keep that in mind as you explore the crypto space.
With that said, a common strategy passive investors (i.e. where someone typically wants a more ‘hands-off’ approach to their investment) use is dollar-cost averaging (DCA).
A core principle of the DCA strategy is to mitigate your risks by distributing them over the long term. With DCA you don’t have to worry about timing the market or risk yourself making hasty decisions due to abrupt changes in the market.
DCA is popular by many beginners, as well as crypto veterans due to its simplicity and effectiveness of distributing your risks.
Hence, by putting a small sum of money periodically towards the same investment regardless of the market condition, can help one to buy into the asset at a price that is “averaged out”.
That way, if the market goes up in the short term, well you’ve just bought some and did not miss out. If the market goes down in the short term, then, happy days, you’ve just bagged yourself some crypto at a lower price!
Learn more: Read our guide on Dollar-Cost Averaging (DCA).
How to start your crypto investment journey
A common barrier why people do not invest in crypto assets (or other traditional financial products) is because they have the misconception that they need to have money, before making money. But this is definitely not the case!
You can start investing with as little as $40 NZD per month. The importance is not the initial amount you put in, but rather you sticking with the investment plan – consistency is key here. This enables two “ingredients” to work its magic in your investment plan: time and compound interest.
Time helps to smooth out the risk and volatility in the short term. While the principle of compounding interest, well, even Einstein found it fascinating and called it the most powerful force in the universe.
For example, if I were to save $80 per month (i.e. $40 per paycheque fortnight), and assuming that my crypto investment is generating me an average of 5 percent per year, over a 10 year period, this would have led to an investment value of just over $10,000. Of course, as you get the hang of it, you can always increase your investment sum. Remember, the key is consistency!
Invest with Easy Crypto’s Auto-Buy
One of the simplest ways to use the power of compounding interest to grow your assets is to use Easy Crypto’s Auto-Buy feature.
Easy Crypto is a crypto asset investment platform that enables anyone in New Zealand, Australia, South Africa and Brazil, to buy, sell and invest or save in crypto assets.
You can choose your choice of crypto assets and have this saved or invest in the wallet or interest-bearing platform of your choice.
To invest with Easy Crypto, you will first need to set up a safe and secure crypto wallet. Then, you will need to register for an account and go through with our verification process.
You can then follow our Auto-Buy process to set up a regular bank payment for the amount you want to invest in crypto assets such as Bitcoin, Ethereum, or other Altsocins, at your chosen time intervals.
For more insider tips, guides, insights, and the latest updates on cryptocurrency, explore the different topics we’ve published on Easy Crypto.
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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated September 26, 2022