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How to Mitigate Risk in the Crypto Market

Investing in crypto is a business that’s not short of risk. You may have heard of how 500 billion dollars vanished from the crypto market in May. This action led to the liquidation of over 8 billion dollars in a Black Wednesday event. This action axed over50% of bitcoin’s high value of $60, 000 and as such over 20% of the sum crypto technology market value disappeared.

Handling the risk involved with crypto technology can be highly complex even as many people expect its downturn to happen, not many were expecting it to hit hard. Although risk management can be hard to execute in a harsh environment, there are certain principles we can apply to reduce such risk. You can get more information on these risks here but let me summarise

Principles to use in Mitigating Crypto Market Risks

Risk Parity and Ray Diallo

Risk Parity was championed by Ray Diallo, a legendary cryptocurrency investor who managed All weather fund and made it worth150 Billion dollars. Risk Parity is a system that enables an investor to balance risks by making investments in different asset classes. Through these investments, fewer funds are not revealed to potential threats which affect the whole investment. 

The risk parity system will select different classes of assets to reduce the risks involved in the investments while generating returns. To use this system, fund managers must select different categories with no relating gain which can be difficult to find. By spreading your investment risks over different categories, returns would be maximised over a period due to long-lasting stability. Get more information on Bitcoin Formula.

Risk Parity and Crypto

Developing a crypto profilr through risk parity was a problem for quite a while because the crypto market was dominated by one currency known as Bitcoin. When the bitcoin value rose, the whole market goes up and when bitcoin value dropped, the market went down. Whatever changes occurred to the price of bitcoin determined the value of the sum of the market class market cap.

With the domination of bitcoin in the market, applying for risk parity for crypto portfolios was not possible. However, things have begun to look up in the last one year for one exciting sector of crypto known as DeFi. DeFi is a crypto technology that serves as a alternate to the accepted financial system. DeFi relies on smart contracts to let interaction between peer-to-peer blockchain users rather than relying on banks, brokerages and market makers.

With DeFi, many different approaches are available with different levels of rewards and risks. This decentralised Finance offers users the chance to apply for risk parity for their crypto profile.

High Returns with Lowered Risks

Through the pairing of crypto assets with DeFi strategies, the fear of the fall of crypto prices like they did in May will not happen because of DeFi’s stable APYs. There are unique platforms that suggest people use a Robo advisor which creates a profile based on the client’s funds and risk appetite. These portfolios will share your funds between the different asset classes based on certain factors such as the spread of investments to reduce connection and to maximize the best profits in each investment because of the owner’s risk tolerance level.

Conclusion

Many people and institutions are migrating to DeFi because a lot of investors want a share of the benefits. The risks associated with their portfolio will be detrimental to if their launch into the world of crypto technology will end with a crash or they will thrive and survive for people who want fewer risks in Cryptocurrency.

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