How to manage risks in crypto investing

How to distinguish between gamblers and investors?

The easiest way is to observe whether he can control the risks.
In the trading game, 80% of traders lose money. If you don’t want to be one of them, you may want to consider these points in advance.

People who are new to investing may find that even in the last bull market, many people still lost money. The endless myths of getting rich quickly in the market make investors FOMO. Everyone thinks they will succeed in the end, but in the end there are always people who keep losing more money.

When many people 'FOMO' in at the top, that ultimately causes them to be thrown out at the bottom.

• There are no shortcuts to avoid this, and the following are just some cliches:
  No matter how much money you make, it can never make up for the pain of losing, because people are naturally risk-averse. Therefore, the pleasure you get from making money can never offset the pain you suffer from losing money.

• Whenever people "win", there is a problem: people are always conceited and think that "winning" is a matter of course, and the happiness brought to you by winning will be weakened.

• Behind every huge profit opportunity comes a huge risk. No matter how big the pie in front of you is, don't forget that the risk you take will always exist.

• When the market gives you a gift, be grateful. When people interact with the market, they must recognize their luck, accept the gift, resist the temptation of greed, and stick to it.

• Know when to quit. This sentence expresses the same meaning as the previous one: curb greed.

• When there is blood in the streets, it is time to buy, even if some of it is your own blood. This is a famous saying by Baron Rothschild in the 18th century, which is intended to express that trading requires anti-emotional thinking in order to collect enough chips under the market's fear.

• The one who knows how to buy is the apprentice, the one who knows how to sell is the master. Buying is easy, but when selling, you have countless fears and greed to overcome.

Types of Risk

Risk is your best friend and worst enemy in this market. Here are the different risk categories:

• Asset depreciation - In the field of encryption, depreciating assets are usually the assets with the highest fomo sentiment. For example, if you took over Dogecoin when Musk was frantically calling for orders, then you must now feel what it means to be lonely at the top.

• Currency depreciation - This is usually caused by inflation. In many Defi protocols, the token limit is unlimited. It usually requires a large amount of minting and reward to liquidity providers. In this process, the value of each token will gradually disappear.

• Regulatory Risk - In addition to countless Rug-pull and meme-coin. Cryptocurrency is still a relatively new financial technology for the general public, and therefore, it has huge regulatory uncertainty. Government regulation may greatly suppress the market value growth of an asset class, even if it has huge financial potential and potential users, which are things that investors need to consider and face in advance. Although non-custodial cryptocurrency wallets provide asset solutions for self-sovereign wealth management, and no one can prevent peer-to-peer sending and receiving of cryptocurrency transactions, the government can cut off the channel for cryptocurrency to fiat currency. If you never plan to sell back to fiat currency, and everything you need to buy can be purchased with cryptocurrency, then regulatory risk may not be important to you.

• Black swan events - global epidemics, local wars, terrorist attacks, etc. will have a huge impact on the crypto market. When this happens, there is the possibility of buying at the bottom, but this also requires great courage, rather than panic selling everything underwater.

• Opportunity cost - If you don't tie up your capital (or time) in something with poor liquidity, then you are not only investing capital, you are also investing and losing other investment opportunities.

• Counterparty risk – This is a common pitfall for novices. It is the risk you take when you let anyone other than yourself keep your assets.

These risks can be divided into the following categories:

• Rugpulls — developers drain the funding pool and run away.

• Hackers - Anonymous hackers profit from exploiting contract vulnerabilities and drain the assets managed by the protocol.

• Being blocked - A centralized platform can block, freeze, or confiscate your assets for any reason.

• Protocol risk — There are huge mechanical problems in the code, which may accidentally destroy all tokens.
  These protocols and centralized exchanges offer attractive yield opportunities, but only if they require users to deposit assets into their platforms. When deciding how much of your net worth you allow them to keep, you must realize that each platform is not secure. Measure your risk based on factors such as TVL, daily active users, age of the protocol, team, their audit rating, and everything you can find to help you determine the likelihood that they will still be around tomorrow. Then, use a percentage of your net worth to fully enjoy their high yields.

Qualities Needed for Successful Investing

Stable mentality

One thing that can help you manage risk is to control your emotions and keep a healthy perspective on past events. Bad trades and missed opportunities can take a huge toll on your mental health if you constantly blame yourself for them.

Morgan, the author of "The Psychology of Money", has discussed this issue. As a successful liquidity miner and former online poker player, he said that you should not pay too much attention to what happened in the past. They can only be experiences and cannot influence your emotions.

A common advantage of successful risk asset managers is their knowledge reserve. In addition to studying human psychology and emotional control, most excellent ones also have a solid understanding of finance, strong mathematical ability, sound fundamental cognition and technical analysis tools and strategies.

Choosing how much of your net worth to allocate to high-, medium-, or low-risk investments can be done by taking a moment to think about your long-term goals, the investment cycle you expect, and how much wealth you hope to have by your maturity date.

A good way to rethink your risk exposure is to imagine the future of a project using the worst-case scenario. And determine different percentages of investment categories for each high, medium, and low risk. If you think something has a 90% risk of going to zero, maybe don't put more than 10% of your high-risk volume or 1% of your total net assets in it. Maintaining a stable risk exposure over the long term is a healthy investment approach.
Always remember that greed is the culprit that destroys any investment portfolio.

This is also a key skill that professional risk managers must maintain at all times. Something that may have a 90% downside risk is still worth holding on to for a bit; but it must have a 9,000% upside potential. Being able to determine this risk-reward ratio and allocate it appropriately is a must in the capital allocation business.

Maintain self-discipline

Risk management has always been the most important yet least popular investment topic, so being able to maintain self-discipline will defeat most people.

Those who take the time to learn and understand these basics will have a huge advantage over the other 80% of market participants.

The question you always need to think about before investing is survival. Surviving is the most important thing.

Most of the time in trading and investing is about being patient, waiting for a good opportunity to invest, and waiting for your ultimate perception to be proven successful or invalid by the market.

Through this process, accumulate your own personal knowledge and investment portfolio skills, effective methodology, and always put risk first, and believe that as time goes by, the market will reward you with these knowledge.