Given the recent happenings in the crypto market, now might be a good moment to evaluate some of the best things you can do, as a trader and as a person, to protect yourself against similar events in the future.
While the failure of a huge cryptocurrency exchange is the most recent example of a “Black Swan,” in the crypto market, Black Swans can occur in all spheres, including the personal, political, and environmental.
In light of this, we will tell you how to protect yourself as a crypto trader from future disasters that you can’t predict.
But first, you must understand the meaning of a black swan.
What Is a Black Swan?
A black swan is an event that is hard to predict, goes against what you would normally expect, and could have bad results.
Black swan events are characterized by their extreme rarity, severe impact, and widespread insistence that they were obvious in hindsight.
What Is a Black Swan Event in the Crypto Market?
In the crypto market, a black swan event is often a market crash that is bigger than six standard deviations. This is very unlikely from a statistical point of view.
And the reason for this article is because of the recent crash of FTX, which can be referred to as a “black swan event.”
4 Tips on surviving the recent black swan event in the crypto market
Below is a list of tips on how crypto traders can survive the “black swan” event and how we can prepare ourselves for future reference.
- Do not put all of your eggs in one basket
- Maintain a cash balance
- Carry no liabilities
- Don’t quit your 9-5 job
1.) Do not place all of your eggs in one basket.
FTX’s recent problems make this very clear, but it’s still a good idea to spread your assets across different custody providers in case any of them run into financial trouble.
Thus, you will always be safeguarded against single-provider risk. Diverse worldwide governments have attempted to mitigate this (FDIC insurance, financial regulation), but nobody looks out for your interests as well as you do.
Ensure you are in a favorable position.
Never retain all of your assets in a single location; this also applies to asset kind and location.
Do you own numerous properties in the same region?
You are immediately exposed to potential natural calamities, radical political changes, and more.
only possess one asset class? Maybe the big picture has suddenly changed in a way that hurts you, and now everything is worth much less than you expected.
Diversity is the name of the game, not only from a positional standpoint but also from a complete risk standpoint. Where are your weaknesses?
2.) Maintain a cash balance
This is especially true for people who can’t access their assets right now because of the recent volatility. Having cash on hand to cover short-term needs can save your life in an emergency.
For some, being laid off is a prime example of a personal black swan event that could knock someone’s finances back by years.
Make sure you’re in a situation where you’re not financially stressed if something abnormal happens to your usual, everyday life.
3.) Carry no liabilities
While some purchases in our lives often entail the use of debt, the strongest-positioned people during a crisis are those who are not tied to others financially.
Considering that most black swans often bring all sorts of financial devastation to their victims, having liabilities might impose unwarranted additional stress that restricts options for people who would otherwise be able to take advantage of the conditions.
Furthermore, people in good financial standing are frequently in the best position to improve their standing during difficult times by purchasing assets at prices that would never be available otherwise.
Debt could make it harder to be this flexible, so if you want to reduce risk, you should avoid getting into debt.
4.) Don’t quit your 9-5 job
This advice may be irrelevant for traders without a high school diploma, but for those with a college degree and a 9-to-5 job who trade crypto as a side hustle, now is the best time to prioritize your career and earn that “best worker of the year” badge.
I understand that as a crypto trader, you may be contemplating quitting your job because you earn more money trading cryptocurrencies or because you don’t have enough time to focus on your crypto business.
If crypto were to crash tomorrow and you lost all your investments, your 9-to-5 job may be the only thing keeping you afloat.
And if you don’t have a 9-5 job you can get a Defi job,
To learn more about Defi jobs, click on this link.
Conclusion
This may not be the most enjoyable subject to discuss, but if you follow these tips, you’ll likely be much better protected against the disasters and misfortunes that the world can throw at you.
