Tips for Managing Crypto Risk | Bankless Africa Weekly Newsletter
This is the Bankless Africa Newsletter, your one-stop plug for well-curated and up-to-date crypto and web3 news around Africa.
Is your money really safe anywhere? Maybe under your mattress.
Looking at the recent events in crypto, one may question its safety. Its rising popularity comes with a corresponding rise in the associated risks. We're talking about hacks, scams, and market volatility that can leave you feeling like you're on a rollercoaster. But don't worry, we've got you covered.
In this newsletter, we'll explore the latest and greatest strategies for managing risk in the crypto space. So come on, let's dive in and learn how to navigate this exciting yet unpredictable market together!
📻 Podcast of the Week
The Bankless Africa Podcast of the Week is "Web3 Value System | Panel Discussion at Africa Web3 Summit"
We bring to you another intriguing panel session from Africa Web3 Summit moderated by Bankless Africa’s Yofi Annan. The conversation featured Adiam Gafoo, Co-Founder & COO of Artshelp, Jake Murphy, Co-Founder of Clokkemaker & Matter Labs, Atsu Davoh, Founder of Bitsika, and Alexander Aspeirs, Head of Communications at Zilliqa. They discussed the interconnectedness of music, gaming, art, and easy access to funds as essential building blocks of a bankless and verifiable value system.
Tips for Crypto Risk Management
Investing in cryptocurrencies can be a great way to diversify your portfolio and hedge against inflation, but it also comes with some risks. Hence, investors need to be aware of these risks, and have a plan in place to manage those risks.
In this issue, we’ll look at some essential tips for managing crypto risk, and how investors can protect their capital while still reaping the rewards of cryptocurrency investing.
Potential Risks of Investing in Cryptocurrency
As with all investments, there is always the potential for losses, and crypto investing is no exception. So, the first step is to understand the risks associated with investing in cryptocurrency. Some risks includes:
1. Volatility: Cryptocurrency markets are often volatile, and prices can move quickly, resulting in steep losses if you’re not careful.
2. Storage: If you’re storing your crypto on an exchange, you might be at risk of crypto hackers, as well as the potential for the exchange to shut down unexpectedly. If you’re storing it in a wallet, you’re at risk of losing your private keys, or having them stolen by malicious actors.
3. Fraud: There are many scams and fraudulent projects out there looking to take advantage of unsuspecting investors.
4. Regulation: The regulatory landscape surrounding cryptocurrencies is constantly evolving and can be unpredictable. New laws and regulations can be introduced that may negatively impact the value of your investment.
5. Liquidity: Cryptocurrency exchanges can be illiquid, which means that it may be difficult to sell your investment when you want to. This could result in a loss of value or an inability to sell your investment at all.
Now that we've identified the common risk, next will be to present risk management practices. Some key practices include:
Research Before Investing
Before investing in any project or asset, it’s important to DYOR (do your own research). You should read up on the project, team, and technology behind it, as well as any potential risks. Usually, you can get vital information from their whitepaper and blog. So, get these resources and ensure you understand the project’s roadmap and what it aims to achieve.
Additionally, you should read up on any potential regulations that may affect your investment. Also consider the project’s past performance to gauge the potential for future gains or losses.
Set a Risk Management Strategy
A risk management strategy is crucial. Here's how to create one:
Determine risk tolerance and create a risk management plan. It includes setting limits on the amount of money, or a maximum percentage of your portfolio that you’re willing to invest.
Set a stop-loss order. With a stop-loss order, you can auto-sell your investments if the price drops below a set level. It limits your losses and protects your assets without constant monitoring.
Set up an alert system. This system inform you of any price movements, helping you stay on top of your investments.
Diversify Your Crypto Portfolio
In order to reduce your risk in crypto, you need to diversify your holdings. Spread your investments across projects, assets, exchanges, and specifically cryptocurrencies like Bitcoin, Ethereum, and altcoins.
You should also try diverse investment strategies too - long-term, short-term, active, and passive. All of these will help you prepare for any market condition and avoid overexposure.
Use Stop-Loss Orders
As we said earlier, stop-loss orders are vital. It is an order to automatically sell your investments if the price drops below a certain level, limiting your losses, and ensuring that you don’t lose too much money.
However, ensure to set them right, because if the market shifts too fast, they can be triggered unexpectedly.
Mind you, stop loss doesn't always stop losses. the price might drop below your order before bouncing back.
Understand the Market
Having a good understanding of the crypto market is also vital. You should get to know the different types of crypto assets, strategies, and tools to trade and invest. Ensure to be updated with the latest news and developments, as these can shake up crypto prices.
Conclusively, crypto risk management is crucial for investors to protect their assets and minimize potential losses. By diversifying holdings, employing stop-loss orders, and staying informed, investors can better navigate the unpredictable world of crypto.
Bonus: Risk Management for Folks Affected by USDC De-pegging
Like with Terra Luna ($UST), we saw before our eyes how USDC fell over 20% from its 1:1 peg with the US dollar. If you are affected, here are a few tips for damage control.
Tip 1: Redeem Directly
If you can redeem your USDC directly to US dollar, this may be the simplest and safest route. However, this option may not always be available to everyone.
Tip 2: Swap to USD or Another Stablecoin and Withdraw to Bank
If you can't redeem your digital asset directly, you can consider swapping it for another stablecoin or USD and then withdrawing the funds to your bank account. However, this option comes with the risk of the exchange or platform you're using being insolvent or otherwise unable to process your withdrawal.
Tip 3: Swap to Cryptocurrency and Take on Market Risk
For brave and risk-tolerant individuals, swapping your digital asset for a major cryptocurrency (such as ETH or BTC) and taking on market risk may be an option. However, this option comes with the potential for significant gains or losses, depending on the performance of the cryptocurrency market.
Tip 4: Hold USDC and Hope Circle Has a Plan
If you prefer to play it safe and avoid market risk, holding onto the USDC and hoping that the issuing company (Circle) has a plan may be your best bet. However, this option comes with the risk of USDC totally losing its peg to USD or Circle being unable to maintain its reserves.
It's essential to carefully consider your goals and risk tolerance before deciding. (Share as tweet)
🥁 African Adage
You can not roast corn with two eyes.
Meaning: The bad actors in crypto aren't just going to stop on their own - we need to take action and deal with them. One way we can do that is by managing risk properly. We've got to step up our game if we want to keep our investments safe! (Share as a tweet)
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Disclaimer: This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.