Mastering the Token Market


Top 10 tips for managing market risk

While the token market is volatile, there are many different ways to manage risk. This piece lists some of the most important tips to set you up for long-term success.

Token Takeaways

The token market is risky, so successful token investing requires managing risk. 

Developing a plan on how to build a token portfolio and navigate the market are key to succeeding in the space.

Managing volatility and knowing when to take profits are also important.

Token technology offers huge promise, but investing in tokens carries some risk. The token market can be volatile as tokens are still a young and experimental asset class. The most successful investors in tokens have always considered various strategies and taken measures to manage their risks effectively. To help you navigate the token universe, we’ve compiled a list of 10 essential tips for managing market risk. Read them below. 

#1 Cover your living expenses 🏠

As there’s a risk to investing in tokens, putting in more than you can afford to lose is not a good idea. Tokens are more volatile than other asset classes and can rapidly decline in value overnight. In other words, investing money you need for living expenses is extremely risky. 

You should only consider putting money into tokens if you know you can comfortably cover living expenses such as rent, groceries, and taxes. Many experts also recommend putting aside an emergency fund to cover at least six months of living expenses before entering the token space.

Many of the token market’s most successful investors have made significant returns by taking a long-term view. Token investors with a long-term mindset do not put in funds that they need in the short term. Instead, they buy with confidence based on the belief that tokens could grow and achieve mass adoption in the future.

#2 Do your own (token) research 📕

“Do your own research” or “DYOR” is one of the token community’s favourite mantras. It’s a simple principle that says you should know what you’re buying. Just as you’d be unlikely to buy a car without getting all the details, you should understand the tokens you’re buying before adding them to your portfolio.

Once you learn about what is a token, the power of token technology, and why certain projects may have value, it becomes easier to succeed in the market. Price crashes are common, but surviving them is less demanding when you genuinely believe in the projects you invested in.

If you want to learn more about the token universe before you jump in, we can help. Make sure to check out the rest of our Learn Hub for in-depth token coverage, and then explore our token Cards and Collections via your app. We’re here to guide you on your journey. 

#3 Start slow 🐢

Just as it’s essential to research tokens before investing in any project, we also recommend starting slow. Tokenization is a decades-long movement that’s still in its early stages. Token technology is young and experimental, and we are still many years away from its mass adoption. That means there’s no rush to enter the market today.

As the token movement is long, investing in the market can be compared to a marathon race. Participants who use up all their energy on the first mile are less likely to make it to the end, so it’s a good idea to keep a slow and steady pace.

One strategy many token adopters use to get token exposure is dollar-cost averaging, also known as the “DCA method.” Dollar-cost averaging involves putting a set amount of funds into a token at regular intervals regardless of the price. For example, someone may put $50 into Bitcoin, Ethereum, and even MATIC tokens every week. This strategy is best suited to people who believe that tokens could grow in the long term.

#4 Plan your portfolio allocation

There are thousands of tokens on the market today, and there could be millions in the future. This can make it challenging to know which projects to invest in. As some projects are riskier than others, building a portfolio of tokens requires careful planning.

Bitcoin and Ethereum are the world’s two biggest token projects and are widely seen as the least risky assets on the market. Both projects are well-established, with significantly larger market capitalisations than others, which means they tend to be less volatile. For this reason, many token investors heavily weigh their portfolios towards BTC and ETH.

While Bitcoin and Ethereum are seen as lower-risk projects, many token adopters choose to move along the risk curve by buying into less established projects like MATIC, the token from the Polygon network. Projects with lower valuations tend to be more volatile. For instance, the price of Matic has recently varied by 20% in two weeks, indicating greater downside risk. However, they can also offer more upside.

Token tips: The risk curve is a popular concept in financial markets. It suggests that taking on greater risk can generate higher returns. As you move along the risk curve, your potential returns increase, but you can also suffer greater losses

While many tokens rise together when market sentiment is positive, less established projects are more likely to suffer in downtrends. That’s why experts recommend having a smaller weighting towards smaller tokens.


#5 Manage token volatility 📉

The token market is viewed as risky partly because tokens are volatile. It’s essential to be at peace with volatility when entering the space. While volatility can cause big market crashes, it can also help tokens appreciate in value quicker than other assets.

Seasoned investors understand that embracing volatility is key to succeeding in the market. They do not focus on short-term price movements. Instead, they look at how token technology could positively impact the world in the long term. Understanding the potential for tokens makes managing volatility easier.

Chart that tracks the evolution of the token market valuation, from 2016 to 2023

The token market has historically been extremely volatile. The token market peaked at a valuation of $3 trillion in November 2021, but the global value has been closer to $1.2 trillion for the last year following intense selloffs in 2022 (Source: CoinGecko)

It’s essential to know how to manage volatility to avoid making emotional decisions. Some people panic and rush to sell their holdings when token prices drop as they act on emotions. But selling in downturns is usually a bad strategy. People who can manage volatility know this and avoid making hasty, irrational trading decisions.

When learning how to manage volatility, understanding what tokens are and how they perform in the market is crucial. Generally, the smaller the project, the more volatile its token will be. Anyone who buys into less established projects should be aware of the risks of dramatic price downturns.

#6 Avoid speculative hype

Like other financial markets, the token market has historically moved in cycles. The most active periods in the token space are known as “bull markets” and are defined by intense hype and price movements.

As token prices can significantly rise during bull markets, they attract interest and hype. But bull markets have historically been the worst time to invest in tokens, as prices often soar to record highs before crashing.

Token market news headline published in Bloomberg in November 2021, weeks before a crash and extended bear market

Token market news tends to dominate mainstream headlines whenever prices rise. This headline was published in Bloomberg as the market peaked in November 2021, weeks before a crash and extended bear market (Source: Bloomberg UK)

In any market, successful investing involves an element of going against the crowd. When the world becomes interested in something based on rising prices, speculative hype is likely to be at a peak, and crashes usually follow.

In short, it’s best to be more cautious about buying tokens when hype is rising. Historically, bull markets have been the best time to sell tokens and secure profits.

#7 Diversify your assets 💵

It would be risky to put everything you own into one token. Just as importantly, it would be risky to put everything into a basket of tokens.

Token adopters can manage risk by diversifying into various tokens alongside established projects like Bitcoin and Ethereum. That way, they will be less exposed to adverse events such as a project's failure.

But diversifying outside of the token market is also a good idea. Property, gold, stocks, and cash are examples of traditional avenues for storing assets, and they are all widely viewed as less risky than tokens. For those more averse to risk, it may make sense to weigh a greater allocation of their assets in cash and traditional asset classes relative to tokens.

Token investing can offer great upside, but the market is demanding. Consider your risk tolerance before putting anything into the space, and always keep reserves in cash and other assets.

#8 Avoid leverage

Some token users take on leverage to increase their exposure to the market. However, this is only recommended for experts.

Token tips: Leverage is a term used to describe borrowed funds. Leverage is abundant in the token space through centralised exchanges and decentralised finance. But taking it on carries significant risk

Borrowing to invest in tokens is extremely risky as the market is volatile. Many traders and investors lose their money when they take on leverage and struggle to repay their loans.

Taking on leverage is one of the most significant risks market participants can take. In many cases, it’s comparable to gambling on the direction the market will move. As such, it’s best to avoid it at all costs when managing market risk.

#9 Stay healthy and focus on hobbies 🧘

The token market runs 24/7. This is likely to be the case for many years to come. Many token enthusiasts welcome the market’s open nature, but it also creates risk.

As the market doesn’t stop and is often volatile, it can be tempting to pay more attention to it than necessary. This is dangerous as it can negatively impact other areas of life, such as hobbies and relationships. It can also lead to impulsive decisions or burnout.

There are ways to mitigate the risks of the 24/7 market. One is to avoid overinvesting in tokens. Another is to prioritise hobbies outside of tokens.

By focusing on your health and other hobbies, you’ll have more opportunities to relax and recharge away from the market. Remember: the token market runs 24/7, but that doesn’t mean you should.

#10 Take profits and plan your token exit 👋

When entering the token market, it’s not a bad idea to adopt a long-term mindset. Many early token adopters made outsized returns from holding tokens like BTC and ETH through multiple market cycles over several years.

Tokenization could take decades to reach its full potential. In the very long term, the token economy could replace the traditional finance system once it hits mass adoption. But while the mission is bold and long-term thinking is important, it’s also a good idea to have a plan for selling tokens.

Many successful token adopters have opted to sell some of their tokens during market surges to secure profits. As the market is volatile and moves in a cyclical fashion, it offers opportunities to “cash out” at higher price levels and then re-enter during downturns.

It’s important to note that timing the market is difficult. As the adage goes, “time in the market beats timing the market.” However, developing a plan to sell a token at a certain price level is a good way to profit from the market.

Learn more 💫

Now that you’ve read this piece, you should have everything you need to know to manage risk in the token market. Ultimately, learning to weigh the risks associated with tokens and navigate the market cycles is key to succeeding in the space. For more helpful tips, make sure to check our chapter dedicated to volatility and then read the rest of our guide on Mastering the Token Market. Once you’ve done that, you’ll be ready to explore the token universe through the app.

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Please note: Investing in cryptoassets is risky. Due to the volatile nature of the cryptocurrency market, investors run the risk of losing their funds when they make an investment. Returns from cryptoasset investing are not guaranteed, therefore users should always be aware of the risks.