Is Investing in Cryptocurrency a Good Idea in 2023?

Is Investing in Cryptocurrency a Good Idea in 2023?

Is Investing in Cryptocurrency a Good Idea in 2023?

Here are five recommendations from consultants for reducing the dangers associated with cryptocurrency investment, whichever you choose.

The failure of the cryptocurrency exchange FTX in late 2022 and the ripple effects it had on other businesses served as a wake-up call for individuals who had previously undervalued the dangers associated with trading in cryptocurrencies.

Sam Bankman-Fried, the CEO of FTX's trading division Alameda Research, was arrested after the company filed for bankruptcy due to problems with leverage and solvency. Worse yet, the entire series of circumstances caused a loss of billions in the cryptocurrency market as investor confidence fell and the market capitalization of cryptocurrencies fell.

Following the demise of the stablecoin TerraUSD (UST) and its companion token LUNA in May 2022, which already had authorities concerned about regulating the booming crypto industry, came the FTX controversy and the accompanying "crypto winter."

In the first half of 2023, cryptocurrency prices in general, and Bitcoin (BTC) and Ethereum (ETH) specifically, have recovered a little. This has caused the market capitalization of the cryptoverse to surpass $1 trillion and led some people to believe that the crypto winter is ended. Yet, a lot of financial consultants continue to advise investors to exercise caution and limit these assets to a modest amount of their portfolios.

Risks of Cryptocurrency Investments

Recent allegations of fraud and poor management against some of the biggest names in the cryptocurrency industry have shown that warnings from authorities like the Financial Industry Regulatory Authority, or FINRA, and consumer advocacy groups like the Consumer Federation of America are justified.

The CFP Board, also known as the Certified Financial Planner Board of Standards, claims that there are at least six distinct risks associated with cryptocurrencies:

  • Speculation and volatility.
  • Difficulty in evaluating assets (separating facts from hype).
  • Custodial risks that may lead to theft or loss.
  • Difficulty in valuing crypto assets.
  • Unregistered assets and providers operating outside of regulatory frameworks.
  • Unpredictable regulations.

In the relatively recent history of cryptocurrencies, these concerns have become apparent. Prices fluctuate sharply, previously valuable assets have lost all of their value, and widespread theft and loss have taken place.

In addition, it is challenging to apply conventional valuation techniques to crypto assets, the regulatory environment has been hazy, and some service providers have operated outside of any established framework.

These dangers might not be sufficient to convince many investors to steer clear of cryptocurrencies. The CFP Board advises investors to adopt specific risk management techniques if they want to keep making cryptocurrency investments. (For a closer look at how financial advisors might discuss crypto risk with clients, see this booklet from the CFP Board.)

How to Manage Cryptocurrency Risk

The following cryptocurrency portfolio management solutions can cut down on the risk for crypto investors:

  • Diversify your crypto portfolio.
  • Choose a credible exchange.
  • Use cold storage.
  • Do fundamental research on digital assets.
  • Keep tabs on the news.

Diversify Your Crypto Portfolio

One strategy for reducing the risk of cryptocurrency volatility is to spread your investments out. To achieve such variety, there are various potential methods:

asset types. While utility tokens like Filecoin (FIL) and Binance Coin (BNB) are examples of cryptocurrencies, payment cryptocurrencies like Bitcoin and Litecoin (LTC) are exchange mediums. Others are stablecoins, such as Tether (USDT). NFTs, or nonfungible tokens, are a different common asset class. A good way to spread the risk is to invest across different asset classes.

case studies Several cryptocurrencies are made for diverse purposes. The Ethereum network, which facilitates smart contracts and the development of several decentralised apps, uses ETH as its native currency. Other cryptocurrencies are helpful for supply chain management, decentralised finance, and the Internet of Things, among other things.


Cryptocurrency has been causing a stir and adding value in a number of areas, including finance, gaming, retail, technology, and social media.


Crypto projects are being developed by inventors all around the world. Diversification by geography can help to reduce the risk associated with a specific area.

Market capitalization

There are large-cap, mid-cap, and small-cap cryptos, much like with equities. It can be beneficial to diversify among market caps in order to achieve both stability and growth.

Blockchain platform

Ethereum, Cardano, Stellar, Polkadot and others are blockchain systems that permit the construction of smart contracts and decentralised apps. Another method of lowering risk is by diversifying among them.

Choose a Credible Exchange

By selecting reputable, liquid exchanges with a solid reputation, custodial risks and the risk of investing with unregulated providers can be mitigated.

FTX was the third-largest exchange when it "crashed," proving that this aspect of risk management is not foolproof, but at least it fosters a higher level of confidence than opaque, unheard-of, and illiquid exchanges.

Because it gives investors more flexibility to relocatecryptocurrency investors their investments if they sense difficulty, liquidity is significant. It should go without saying that safeguarding capital is more crucial than maintaining an exchange's allegiance.

Use Cold Storage

Another strategy for reducing custodial risks is cold storage. Wallets that are cold, or offline, are safer than those that are hot, or online.

When buying their crypto assets, cryptocurrency investors who don't need to buy and sell frequently can move them to a cold wallet; when they need to make a transaction, they can move them back to a hot wallet.

Do Fundamental Research on Digital Assets

When it comes to investing in cryptocurrencies, the main consideration is: What value does it provide? Although short-term price swings may be influenced by market speculation, a crypto asset's long-term price movements will be determined by the inherent value it offers.

By doing the necessary research to establish value, investors may be sure they are not overpaying for an asset. The discounted cash flow (DCF) model, the equation of exchange, relative value analysis, and other standard valuation techniques have all recently been tried to be applied to cryptocurrencies, despite the fact that they are scarcely a match for them.

Investors should decide whether any of these techniques can be used with the particular digital assets they are thinking about.

Keep Tabs on the News

Investors who follow reputable media reports are better able to see events that have an impact on their investments, such a crypto exchange beginning to spiral out of control, however they shouldn't act on every unfavourable news they hear. They will also be aware of the release of new and revised regulatory frameworks and be able to evaluate assets and exchanges in accordance with those criteria.


Since cryptocurrency is still in its infancy, nobody knows what the future may bring. Investors who are optimistic about the future of cryptocurrency must yet use caution and implement risk-reduction measures. Investors will also be in a better position to assess their risk tolerance and capacity after speaking with a financial advisor.


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