Why actively investing in crypto markets may be a risky proposition?
Tags: Palettes, Cryptocurrency, Bitcoin, Investing, Blockchain

Recent months have witnessed the volatility in the cryptocurrency market, where drops can be accounted for a number of factors like now defunct Mt Gox, China banning anything crypto, news about alleged price manipulations, hacking and other negative factors. On the reverse rumours of large institutional investments, fear of missing out, and collaboration with financial institutions are a few of the things that can cause the markets to rise. But with over 2000 cryptocurrencies currently trading, it is practically impossible to track and manage a diverse portfolio of cryptocurrencies.

Undoubtedly, the potential returns in the crypto-market can be great when compared to traditional markets. The level of gains that were seen in the early days even recently with a 10,000%+ increase in Bitcoin alone in the two year bull trend that finished at the end of 2017 — the question is, are these days of huge returns over?

The gains to effort ratio has decreased in the past few months and has become very taxing mentally and emotionally for a retail crypto investor to get consistent gains in the crypto market. But under no circumstances are the crypto markets dead — cue dramatic music. Cryptocurrency and blockchain is here to revolutionize the future, we hear of companies such as IBM, Google, Facebook etc, all looking at blockchain solutions and this can only indicate that more money is looking to come into the market once we see clearer regulation and better custody solutions. From infrastructure projects to dApps, payment systems to social media platforms; there are now hundreds of startups innovating in this space and it looks like blockchain is here to stay.

Most of the retail crypto investors are actively managing their crypto portfolio. But active trading, is not the right investment strategy for everyone. For one active investing can be one of the most stressful experiences you go through in such volatile markets.

Building a successful trading strategy requires knowledge about technical analysis, quantitative analysis, and an ongoing research of market themes. A successful trading strategy is build on an exoskeleton of trade filters, trade triggers, trade entry rules, exit parameters, and overall crypto-asset management as deemed by the investor. When properly researched and executed, it provides probabilities and trends that help determine if a trading idea is potentially profitable.

Along with honing the above skills, as an investor you also have to work on minimising unsystematic and systematic risk. This can be only done by -

Spending time to study the coin, team, market and map its progress and doing this for 2000 plus coins, to reduce unsystematic risk. Hedging your trades to reduce the systematic risk to your portfolio.

Knowledge about the markets and skills are not enough for daily trading or active trading. The following practices are needed for consistent profitability:

Staying committed to a predetermined trading strategy. Emotional control on trading decisions. A significant amount of time and effort for research and rebalancing purposes. Diversified and active management of portfolio

Active trading can be extremely stressful and statistics show that more than 80% of traders lose money. If you’re new or newish to the markets and don’t have time to babysit your trades and/or have time and money to spend on learning and mastering the emotional aspects of trading, then you might just fall into the vast 80%+ majority.

The question is how to get the maximum benefit from investing in such volatile markets without losing your mental and emotional peace?

We at Palettes believe that the best way the masses can participate in the crypto markets is via Passive investing in crypto.

A well deployed passive investing strategy results in

Low operating costs and fees. Ability to track past performance, making it transparent and reliable. Though past returns are not an indicator of future performance but they certainly inspire confidence. Fantastic for long term wealth creation. Much less mental, emotional and time-based involvement from the investor. Lower risk, with potential stable and consistent returns.

If you would want to explore more on passive investing in crypto and making the most of the crypto gains without losing your sleep over it, join the Palettes community - Or checkout our product at https://palettes.io/.