After an amazing rise of more than 300% in 2020, Bitcoin gained an additional 60% in 2021. Investors are now wondering if the largest cryptocurrency will continue to rise in 2022. After reaching an all-time high (ATH) above $68,000 last year, the token was unable to stay at this level, ending the year at about $47,000. At the time of writing, Bitcoin has fallen even further, below $43,000 – down more than 40% from its ATH.
In 2022, Bitcoin will probably continue to make its way into the consciousness of the general public and become part of professional investment strategies looking to take advantage of this alternative asset. Even if Bitcoin is a volatile and risky asset, Bitcoin trading can bring potential opportunities for active traders, as well as for investors looking to build a better diversified portfolio, as long as they learn how to best manage risk when trading.
Let’s now have a look at a few ways to best manage risk when trading Bitcoin.
1# Pick a solid platform
Scams are prominent in the crypto-sphere, so if you want to trade or invest in Bitcoin, you have to take the time to select a well-known and reliable exchange or broker.
While most crypto exchanges are not regulated, brokers are more often regulated and offer multiple protections to traders, especially brokers that allow trading of Bitcoin via derivatives like Contracts For Difference (CFDs).
2# Use a VPN to trade cryptocurrencies
A large number of crypto-traders use a VPN (Virtual Private Network) to mask their IP address to avoid cyber-thieves accessing their tokens. As most transactions with cryptocurrencies appear on the corresponding blockchain, which acts as a public ledger, hackers can use the information on this ledger to detect IP addresses and steal tokens.
Using a VPN helps traders mask their real IP address and better protect their data online. It is also a great tool for those looking to circumvent restrictions on the use of certain sites in more restrictive countries, especially as it is forbidden to trade or own cryptocurrencies like Bitcoin in some parts of the world.
3# Use money and risk management tools
It is essential to have risk and money management rules in your trading or investment strategy to adopt a reliable and winning strategy over time. Depending on the platform you use to trade Bitcoin, you will probably have access to different money and risk management tools that you can use to better protect your trading capital.
Depending on your overall strategy, risk tolerance, as well as financial goals, you could use stop-loss and take-profit orders, change the leverage level, and adapt the size of your positions depending on market conditions.
4# Diversify your crypto-portfolio
Diversification is another technique to minimizing risk when trading, as it allows you to spread your exposure among different assets, asset classes, currencies, as well as financial products. This will allow you to build a portfolio with assets that are not strongly positively correlated.
In the crypto-market, try not to invest all your capital in a single cryptocurrency – rather, invest in different cryptocurrencies, belonging to different investment themes like NFT (Non-Fungible Token), Metaverse, DeFi (Decentralized Finance), and Staking, among others.