Cryptocurrency has made many people successful millionaires, but at the same time, it has also pushed many towards suicide and crippled many organizations. Trading or investing in cryptocurrency can make you rich, but at the same time, it has its risks. There\u2019ll be excellent gains sometimes, and other times, there\u2019ll be bad times.<\/p>\n
In April, Bitcoin got to its highest value of over $60,000 since its launch in 2009. However, some two weeks into May, the value came crashing to a little over $30,000. This crash had over $8 billion liquidated and no traces of about $500 billion. These are some of the risks you may experience with crypto. The question is, how can you manage these risks? Let\u2019s take a look at some strategies;<\/p>\n
Risk Parity<\/strong><\/p>\n Risk parity is a strategy that any learned trader will associate with trading legend Ray Dalio. This strategy is simple: You invest all funds into assets that do not correlate, resulting in reducing your funds. So if anything negative occurs with one asset, it doesn\u2019t affect your total investment. With risk parity, you divide your funds into different sectors, which means your gains come from various sources. However, it means as a trader, you have to look out for crypto assets that are not related to returns. This is not an easy task, but if you master the art of risk parity, you will reduce risks.<\/p>\n Decentralized finance<\/strong><\/p>\n Cryptocurrency revolves around Bitcoin \u2014 the first and most influential currency. When Bitcoin surges up in value, the entire market surges up. If Bitcoin reduces in its value, most other crypto assets will follow suit. This dependence on the market makes it hard for risk parity to be the best risk management method. That\u2019s where decentralized finance steps into the occasion.<\/p>\n Decentralized finance, often abbreviated as DeFi, is essentially another option for the regular crypto market. Fortunately, DeFi also depends totally on the blockchain, so there is no fear. In a decentralized finance system, you don\u2019t need to rely on any bank or broker. Instead, the system utilizes one or more smart contracts to interact with more than one person on the blockchain. A great example of a smart contract-supported crypto is Ethereum.<\/p>\n The decentralized finance system allows flexibility and opportunities. Therefore, there is an opportunity to apply this system in diverse strategies with corresponding risks and rewards. So with this decentralized system, risk parity is a possibility to reduce risks in crypto.<\/p>\n