Risk Management
Where there is RISK, there is OPPORTUNITY

RISK is part and parcel of investment. No other investment category has a higher risk than Cryptocurrency. But as a rule of thumb – the higher the risk, the greater the potential return. When an asset class is risky, Risk Management become very important because if the Risk can be managed and mitigated well, then you will end up having an investment with lower risk and yet, high potential returns.

Time – Do you have the patience to wait and to ride the wave?

Most of us probably noticed the price of any Cryptocurrency tends to fluctuate to a great degree in a given week. In fact, daily price movement can easily range from 3 to10%.

Like all new asset types, any news, be it relevant or not; be it true or not, will affect the price movement significantly. These occasional short-term crashes and market dips are risks that cannot be avoided. Therefore, both time and patience are equally important in your decision-making process. If you are expecting that cryptocurrency investment is a get-rich-quick scheme, you will likely be sorely disappointed. However, if you are an investor with a long-term view and time to wait, then your overall risk has already been greatly reduced.

The King of Cryptocurrency, Bitcoin, reached a high of ~$980 in November 2013 and then went down all the way in 2014, hovering around $200-$300 throughout 2015 and only came back to the same level in January 2017 (after waiting for more than 3 years!). But for those investors with patience to wait and no time constraint, Bitcoin increased by 15 Folds (1500%) in 2017. In early 2018, Bitcoin dropped 2/3 of its value to ~ $6,000 and has since rebounded off its low.

The 2nd largest Cryptocurrency, Ethereum reached ~ $390 in June 2017 but within a month, it dropped about 60% to $150. Can you accept your investment lose more than half its value within 1 month? You either panic and sell off at lost or if you remain calm, 6 months later in January 2018, it reached $1,380. Within a matter of weeks, it lost half of its value and has since rebounded off its low.

The 3rd largest Cryptocurrency, Ripple went from less than 1 cent USD to ~ $3.30 in 7 months and then loss more than 2/3 of its value within 1 month. Who knows how long would it take for the price to recover and when it does, sky is the limit!

From the 3 assessments above, we can easily conclude that:

  1. If time is of the essence, do not invest in Cryptocurrency;
  2. Similar to S&P 500 Stocks, the new peak prices of most reputable Cryptocurrencies have always been many folds more than the previous record price;
  3. If you have the time and patience to wait for months and even years or are looking forward to riding the next wave, Cryptocurrency investment is definitely an asset class worth considering.

Wallet Security – Can someone steal your Cryptocurrency?

Hypothetically, there is nothing that is so secure that it is unbreakable. But realistically, how many millions of Blockchain Accounts have been created versus the number of theft (less than 10) cases recorded. The ratio is probably 1 in 10 million.

Any Cryptocurrency Breach is usually worth tens to hundreds of millions of dollars because it is seriously very difficult; it definitely requires ample time, resource and financially constraint to plan and execute a successful cryptocurrency heist.

Syndicates only target Cryptocurrency Exchanges and never individual accounts. Unless you own tens of millions of dollars’ worth of cryptocurrency and you put all of it in one wallet and you go around, bragging about it to everybody until you become a target of cyber-criminal syndicates. Otherwise, the risk of your cryptocurrency wallet being breached is almost zero. It is definitely safer than money kept in any conventional bank accounts, anywhere in the world.

Government Regulation & Intervention

One of the most unique feature of Cryptocurrency is its decentralized feature. DECENTRALIZED means it is FREE from any centralized body such as the government, monetary authority, central bank, securities commission and financial services authority.

A true Cryptocurrency gives absolute power to the users, no matter where they are and no matter what nationality they are. In a nutshell, no single jurisdiction, not even one centralized authority, can ever stop the Use and Transaction of a cryptocurrency in the whole world.

However, we have seen and witnessed intervention by authority on Cryptocurrency Exchanges recently. Enforcement on Cryptocurrency Exchange may affect the price movement of Cryptocurrencies in the short term but eventually if a cryptocurrency has many users across the world, nobody, not even any government authority, can stop its movement and utilization.

In fact, most of these intervention strategies are meant to prevent illegal activities normally associated with cryptocurrencies. Such measures may bring panic to the cryptocurrency market and crypto users on the short term but it will eventually provide a more stable environment for this asset class to grow to become a mainstream financial product.

The introduction of Bitcoin futures trade in Chicago Board Options Exchange (Cboe) and Chicago Mercantile Exchange (CME) - World’s largest futures exchange in December 2017 is a clear indication that Cryptocurrency will eventually be accepted as an investment class. For the next few years, there will be a lot of regulations by Authorities around to world to implement reasonable Anti-Money Laundering (AML) laws onto cryptocurrencies. For investors, this is definitely a good news in the long-term.

The potential of cryptocurrencies as an investment class is unlimited once proper regulations are in place but until that happens, there will be a lot of volatility, risk and opportunity.

Download our official mobile apps today.
Financial.org is an educational platform. We DO NOT deal with securities and receive any financial benefits from Financial Products & Service Providers.
All Rights Reserved © 2016 - 2019