By now, you have undoubtedly heard of cryptocurrency. With words like, “Bitcoin,” “Dogecoin,” and “Blockchain” flooding the news, it is hard to stay oblivious.
Whether you have already invested in crypto, or plan to soon, you’ll want to know the risks. Just like any currency in an ever-changing world market, the value of cryptocurrency fluctuates. Understanding what crypto is and identifying which one is worth investing in can help you optimize your crypto risk-reward ratio.
- Understanding cryptocurrency – What you need to know to get started
- Choosing a currency – Bitcoin, Ethereum, and more
- Calculating the crypto risk-reward ratio – Divide your net profit by the price of your maximum risk
- Crypto risk management – Mitigate losses
- Crypto alternatives – PrizePool
Crypto is a digital currency secured by cryptography. This means a governmental authority can’t control it nor can it be counterfeited by an individual. Cryptocurrencies are created using encryption algorithms, and to use crypto, you need a cryptocurrency wallet. This is a cloud-based service software stored on your computer or mobile device. All crypto transactions, including buying and trading, happen with the help of blockchain technology.
Know the Community
The value of a cryptocurrency is largely seen by its following. A cryptocurrency with a strong community and many investors is evidence that people believe in it. Investigating subreddits, YouTube channels, and comments on various platforms can help you gauge how interested the community is in the currency. If you have any unanswered questions, post on these platforms and someone is sure to get back to you.
Analyze the Team’s Foundation
Knowing the origin of a cryptocurrency can help you determine its value. Investigate the team that created it, their ambitions for creating it, and their strengths. This can help you choose a fundamentally sound crypto. A team made up of members with great expertise and a successful track record are good signs.
Choosing a Currency
As cryptocurrency becomes a more and more common investment, more currencies are introduced to the market. These are the ones you should know about:
Bitcoin is one of the most popular cryptocurrencies. BTC accounts for almost 40% of market capitalization. It recently hit an all-time high of almost $69,000. In its history, the value of Bitcoin has dipped here and there but always seems to bounce back.
Ethereum is the next most valuable cryptocurrency after Bitcoin at a market capitalization of 21%. Some claim Ethereum is better than Bitcoin because it is the most used blockchain in the world and the network of choice for the growing fields of decentralized finance (DeFi) and nonfungible tokens (NFTs).
Solana, Binance Coin, Polygon, Avalanche Token, and Kitty Inu are several other cryptocurrencies rising in popularity. Find one that you feel comfortable investing in.
Calculating the Crypto Risk-Reward Ratio
Once you have decided which cryptocurrency interests you, it is important to balance risk vs. reward. You can calculate this by dividing your net profit (the reward) by the price of your maximum risk (your investment). This will give you your crypto risk-reward ratio. If the risk/reward is below your threshold, raise your downside target to attempt to find a ratio you like. If your calculations don’t lead to an acceptable ratio, consider a different investment.
Crypto Risk Management
A huge part of managing risks is having a trading plan. A trading plan can include formulating a strategy, maintaining a pattern, and managing risks.
The main goal of crypto risk management is to mitigate losses. If it looks like the value of a cryptocurrency is going to plummet, get out early to minimize how much money you lose.
How PrizePool Can Help
Crypto can be a tricky field to navigate. Prizepool can help! Beyond its normal function of growing your funds through weekly and monthly giveaways, Prizepool will soon be offering crypto integrations that allow you to earn interest on your crypto holdings. This will help you maintain a safe trading plan for your cryptocurrency. Diversifying your portfolio and your saving choices is always a good idea. Investing in crypto AND having a high-yield savings account will benefit you the most.
So there you have it, the basics of crypto. Some cryptocurrencies are more promising than others, so manage your crypto risk-reward ratio and invest wisely.
Crypto is still a relatively new investment option. Soon enough, PrizePool will be able to help you manage it and maintain a safe trading plan. If you want to get into trading cryptocurrency and also love saving with PrizePool, keep an eye out for future updates!