There is a good reason why all consulting agencies include disclaimers about the risks of investments in financial assets. Virtual assets, including cryptocurrencies, qualify as financial assets in many jurisdictions, which entails that they exhibit a similar level of risk relative to the other types of financial assets. In addition, the inherent volatility of the crypto assets, combined with the lack of a regulatory base, amplifies these risks. Despite these risks, crypto remains a highly attractive investment asset, primarily because of its utility and potential returns. Thus, it is important to learn how to manage the existing risks.
The story involving the collapse of the second-largest crypto exchange FTX contributed to the panic in the crypto markets. Many started asking questions about whether FTX is the only exchange, where the CEO is engaging in questionable practices. These questions caused a
real panic in the cryptocurrency markets, as seen through the decline in the price of the flagship coin, bitcoin. While it is hard to say whether other
top-ranking executives are engaging in unethical or illegal activities, there
are good signs that assist with the analysis. It is possible to outline
specific measures that help with the security of crypto assets for individual
traders and large funds.
real panic in the cryptocurrency markets, as seen through the decline in the price of the flagship coin, bitcoin. While it is hard to say whether other
top-ranking executives are engaging in unethical or illegal activities, there
are good signs that assist with the analysis. It is possible to outline
specific measures that help with the security of crypto assets for individual
traders and large funds.
First, always do a background check on the cryptocurrency exchange platform. Does it hold a reliable license? Does it undergo periodic audits by independent parties regarding the use of funds of its customers? These are good questions to ask before diving into trading and putting trust into a platform. For instance, Malta, Estonia, Great Britain, and the Philippines are the significant jurisdictions to receive a regulated license. The Estonian Financial Intelligence Unit (FIU) permission indicates economic substance for modern crypto platforms.
A Class 4 Malta VFA License is a strong sign of security and reliability of an
exchange. Reportedly, only a few crypto platforms like Kyrrex obtained it in
2021. This type of license allows companies to provide completely secure
cryptocurrency services. In Kyrrex we pass regular inspections and audits as regulated companies, which proves that exchange is not using assets for personal profits. In addition, we do not rely on large companies, such as Binance, for company`s liquidity.
Second, store crypto in multiple cold wallets. No matter how convenient it might sound to keep cryptocurrency or tokens on the exchange platform, it is always a bad idea from a cybersecurity standpoint. Breaches, fraudulent activity, or bankruptcy, as in the FTX case, result in freezes on withdrawals and potential asset losses. Cold wallets are hardware devices without an internet connection.
Essentially, they store encrypted keys to crypto without the possibility of
online access. The biggest risk of this method is a loss of wallet, theft, or
physical damage.
Essentially, they store encrypted keys to crypto without the possibility of
online access. The biggest risk of this method is a loss of wallet, theft, or
physical damage.
Third, rely on two-factor authentication and use different passwords. The two-factor authentication can prevent theft and loss of accounts. Different passwords for different websites and platforms will be useful in case of leaks on these platforms. The additional level of security offered by these measures is an effective risk prevention measure.
Fourth, use secure internet and avoid public Wi-Fi networks. Checking the security means having updated firewall protection. In addition, it is useful to rely on Virtual Private Networks (VPNs). A VPN encrypts packages of information sent by the user and hides online activity from external parties, including Internet Service Providers (ISPs).
Fifth, avoid scams and phishing attempts. These are amongst the most common tools used for the theft of data and personal information. Phishing attacks rely on trust to obtain account details and user data. A good idea is to avoid external links leading to suspicious websites and potential giveaways requiring personal information.
While the mentioned security measures are effective for securing crypto assets on their own, their combination minimizes the broader risks. In addition, it is always good to remember the golden rule of investments, which puts focus on diversification. It is never a good idea to
“put all eggs in a single basket.” Even if it seems that a certain crypto asset
will deliver superior returns, mix it with more traditional assets and
cryptocurrencies. It is even better to add different types of assets, such as
equity and bonds. The common-sense approach is to never invest the last money.
Instead, invest in the instruments proportionately to their level of risk. The
higher the risk, the lower the portfolio share they should represent. Stay safe and keep on trading.
“put all eggs in a single basket.” Even if it seems that a certain crypto asset
will deliver superior returns, mix it with more traditional assets and
cryptocurrencies. It is even better to add different types of assets, such as
equity and bonds. The common-sense approach is to never invest the last money.
Instead, invest in the instruments proportionately to their level of risk. The
higher the risk, the lower the portfolio share they should represent. Stay safe and keep on trading.