The crypto market has many advantages when it comes to capital allocation. Bitcoin is one of the best-performing assets in the world of finance, with a total return of over 37,000% since 2008. However, it can be quite dangerous for newcomers as there are many risks associated with cryptocurrencies and decentralized finance protocols.
Identifying safe crypto investment strategies is a difficult task even for experienced investors who have seen it all. We will give you several reasons to consider investing in the crypto market and explain risks that may negatively affect your portfolio. Note that we do not provide financial advice. We encourage all our users to do their own research.
How to evaluate crypto projects
The DeFi ecosystem features over 14,000 protocols across 110 chains. While the vast majority of them do not have substantial financial activity, it is still a massive number if you want to analyze all viable investment opportunities. The problem for many investors with a background in traditional markets is that many fundamental methods of analysis simply do not work when applied to highly speculative cryptocurrencies.
The overwhelming majority of DeFi protocols do not have established brand value, real assets, or even contracted employees. It is impossible to measure their value based on the metrics commonly used by fundamental analysis. At the same time, protocols may not even have native tokens that are traded on centralized exchanges.
Crypto market analysis
There are several approaches that an investor may take when choosing optimal cryptocurrencies to purchase.
Here are popular approaches:
- Technical analysis is often the only way to predict price action in the largely speculative crypto market. The best platform for technical analysis is TradingView. It is a massively popular trading terminal that provides smart charts that have all sorts of indicators, graphical tools, and even complex strategies that investors can use to analyze current market conditions.
- DeFi data aggregators like De.Fi, CoinGecko, DeFiLlama, and others. These platforms are great when you need to find some crucial information about a specific project. For instance, DeFiLlama tracks over 11,000 pools across over 100 chains. It is a good destination for people who want to invest in the DeFi ecosystem.
- Smart investment platforms. If you do not have the necessary expertise or time to research various crypto protocols, you can visit platforms like Rivo. It is a great place if you need a personalized investment guide because of the Maneki AI digital assistant. It will identify the best strategies that work for your preferences and risk style.
Use these instruments to analyze crypto projects that caught your attention. Note that Rivo is a great destination for many newcomers precisely because it has a catalog of strategies selected by professionals and vetted by teams of specialists who do the due diligence on your behalf.
Crypto risk assessment
Understanding risks associated with crypto investments is crucial for the success of capital allocation in this complicated ecosystem. Unfortunately, many investors fall victim to fraud, hacks, and other completely preventable issues. On the other hand, economic uncertainty, volatility, and regulatory concerns are valid and should not be dismissed.
Here are some risks that you should know about:
- Extreme price volatility. Bitcoin’s average monthly volatility regularly exceeds 50%. Some periods have much higher volatility numbers. Prices can go up and down significantly, creating a very unstable investment environment. The historical performance of leading coins is good enough to offset local instability. However, it can be quite risky for newcomers to purchase very volatile digital assets.
- Regulatory concerns. While the EU and US are moving forward with their regulatory frameworks, many of them still do not cover many DeFi sectors. For instance, the Markets in crypto-assets (MICA) regulation in Europe does not work in some states and still presents some challenges. The lack of consumer protection and the slow reaction of regulators create additional risks.
- Technological inefficiencies. In 2021, Poly Network lost over $600 million to hackers exploiting smart contract vulnerabilities. Even centralized institutions regularly suffer from cyber attacks and security breaches. Many protocols are using good development practices and can avoid such issues, but technology remains a weak point in the DeFi ecosystem.
- Scammers and fraudsters. The unregulated crypto market is targeted by all sorts of scam artists. Pump-and-dumps, Ponzi schemes, theft, and many other dangers of the cryptocurrency market make it a very dangerous place to navigate. While it is possible to avoid scammers, many investors often forget about common sense when hit with investment opportunities that seem too good to be true.
- Adoption and utility. One of the biggest issues with many DeFi protocols is relatively slow adoption by individual and institutional investors. Also, the current wave of DeFi and RWA trends promises greater utility and the ability to use digital assets in the real world. However, the utility is rarely delivered, and investments are left holding the bag.
An investor also has to consider macroeconomic risks associated with correlated market movements, interest rate hikes, and international trade. The crypto market is not untied from the larger global economy. It is a speculative ecosystem that thrives when interest rates are low and institutions are heavily investing in stocks, futures, and other riskier financial instruments.
How to protect the future of crypto investing on a personal level
Here are some tips you can use to navigate the crypto market more safely:
- Work with reputable platforms. Make sure to trade on trustworthy centralized exchanges.
- Use cold storage. Store tokens on a separate, secure wallet address when you do not engage with the market.
- Diversification. It is a bad practice to put all your funds into a single digital asset. Don’t participate in the “stablecoins vs volatile coins” debate and put money in both.
- Don’t underestimate the role of educational platforms in reducing risks. Study materials from Coinbase Learn, Binance Academy, and other sources.
- Be confident and resilient. Trader psychology is a major factor that affects the long-term outcome of investment activities. Do not fall victim to FOMO (fear-of-missing-out) or panic selling.
- Limit investable capital to what you can lose without endangering your financial well-being. All crypto assets are speculative in nature and can lead to significant losses.
These tips are for newcomers who want to explore the exciting world of cryptocurrencies and DeFi projects. However, they will not shield you from the dangers of this market completely!
Should I invest in crypto?
Digital assets are not for everyone in their current form. We still need safer technology, better performance, and more regulation to increase adoption rates. However, people who want to benefit from the inevitable expansion of the DeFi sector must start investing now to capitalize on potential price appreciation and learn how to use complicated financial instruments.
Newcomers are encouraged to visit the Rivo Yield Marketplace featuring a wide range of strategies that have been meticulously inspected and verified by trained specialists. You can select from a rich variety of investment strategies and pick options that suit your preferences and risk style.
