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Risk = Profit
High returns on cryptocurrencies come from the high volatility of the market. It is common for an altcoin to vary greater than 50% within 24 hours. And even Bitcoin, the cryptocurrency with the largest market capitalization, has seen fluctuations of more than 10% in a single day.
Remember the investment principle: risk = profit
The risk that resides in buying and selling cryptocurrencies is relatively high compared to FX, futures and equities. Consequently, the return may be more attractive than traditional investments.
Although there is no concrete analysis of this movement, speculation makes most investors buy before, or even shortly after the halving, and try to sell later.
Diversify Your Portfolio
“Don’t put eggs in one basket.”
This logic is also applicable for crypto investment.
If you use all your resources to buy a single cryptocurrency, you may miss out on opportunities to hedge against other cryptos.
Bitcoin, and Ethereum are some of the most valued cryptos in the world. When they have a strong appreciation, a portion of the capital invested in them may come out of investing less valued altcoins, resulting in a drop in the values of those altcoins. On the contrary, sudden appreciation of altcoins can attract money from investments in BTC and ETH.
Special Situations of Receiving Valuation Tied to Crypto
There are special situations that the altcoins whose values are tied to a certain crypto’s scenario only receive valuation when the tied crypto goes in a downward direction, such as EOSBEAR, and ETHBEAR. EOSBEAR is a popular token. It seeks a yield that links to -3 times of the daily yield of EOS.
On the other hand, stablecoins, as the name implies, have a stable value, for example, the USDT price is pegged to the US dollar.
Therefore, it is advisable to diversify your portfolio with different crypto’s to reduce investment risks.