Cryptocurrencies are a hot topic these days. You must have seen news stories about Bitcoin millionaires, but do you really know how to calculate the risk associated with buying cryptocurrency?
Price Volatility
The most important risk factor for cryptocurrency investors is price volatility. This is a measure of how much the price of an asset changes over time, with higher numbers indicating greater fluctuation.
The standard deviation (SD) is one way to measure this, as it shows how far apart each data point is from its mean value. The SD also helps you understand how likely it is that an investment will lose money or make gains over time. A large SD means there’s high variability in returns; this means that if you buy and sell at different times during your investment period, your results may vary greatly depending on when you bought or sold.
Beginner’s Luck
As a beginner, you may be tempted to take advantage of the first-time buyer’s rush of adrenaline and excitement. You might feel like you’ve got beginner’s luck in your favor–but don’t let it cloud your judgment! SoFi also offers a beginner’s guide to crypto to ease you through the the buying and trading process.
If you’re willing to buy crypto as an investment, plenty of other ways can help you make better decisions than simply relying on beginner’s luck.
Early Adopters
Early adopters are willing to take on more risk because they understand the technology and believe in its potential. They might even be involved in developing the blockchain themselves, meaning they are vested in seeing it succeed.
Biological Factors
- Biological factors can affect the way you make decisions.
- You’re more likely to take risks when in a good mood and less likely when in a bad mood.
- People are also more likely to take risks when they are tired or hungry than when they are well-fed and rested.
Plotting Trades
As you begin plotting your trades, it’s important to remember that there are no guarantees in the cryptocurrency market. You may have a plan for how you want to trade, but things can change quickly and without warning.
Things like technical indicators and support levels can help give you an edge in seeing when a price is going up or down before others do. But even with this information at your disposal, nothing is guaranteed–and if someone tells you otherwise, they’re probably lying!
Multiple Accounts
You can have multiple accounts, so it’s a good idea.
To take advantage of the fact that cryptocurrencies are not correlated, you should have at least two accounts: one for high-risk investments and another for safe ones. You may even want to have several more than that if your risk tolerance allows it. This will give you options when deciding which coins to buy or sell to balance out your portfolio when volatility occurs–or simply because their prices are too low at any given moment!
As you can see, cryptocurrency is a complex asset that comes with its own set of risks. However, it’s important to remember that these risks aren’t unique to crypto–they apply to any investment or asset class. So the key takeaway here is that when deciding whether or not to invest in any new asset class (like cryptocurrencies), you should always weigh the potential rewards against the potential risks involved.
