The necessity for risk adjustment
When it comes to investing in crypto, many prefer to buy the assets and hold them for a long time in the hope that 20 years or so from now they will multiply x100.
But is there anybody who knows exactly what will happen in 20 years from now? Are there any guarantees they will grow versus crash like many others? Just look at the epic Terra-Luna plunge, which wiped out hundreds of millions of dollars of personal wealth.
Accidents happen and without having a crystal ball, it’s best to prepare for the worst. In other words, adjust your risks in advance to avoid losses in the event of a potential collapse.
It’s as simple as that. Everyone needs a risk management strategy. And if your’e in crypto and you don’t have one, it’s time to get one. Money is not a game.
Risk Adjustment: The Definition
Risk-adjustment is a method of managing or adjusting your investment risks to maximize every return.
It uses a set of smart techniques, targeting volatility and risk in the market, to extract better long term asset performance.
Every trading opportunity in volatile markets, be it the beginning of a decline or a bull run, is fraught with uncertainty yet pack with opportunity. By risk-adjusting, you recognize this uncertainty by allocating a portion of your assets to cash (as a buffer), leaving the rest in the market to maximize gains should the market change. It’s perfect.
This permits protection and performance to play their respective roles. Protection during declines and performance during ascents. And with so much volatility in crypto, risk needs to be adjusted every few days or so to keep up with the blazing pace.
It’s like wearing a pair of smart sunglasses that automatically adjust their tint to the level of brightness. Full sun, full tint; no sun, no tint; half sun, half tint; and so on. The goal of the tints? To provide you the optimal clarity (of vision) relative to the level of brightness.
And, no matter what the brightness, the sunglasses always manage to adjust themselves perfectly to provide the best possible view of reality; and with this, giving you the stability and comfort you need to continue calmly with your day.
Risk adjustment in investing, works in the same way. Balance your risk reward ratio, and live a stress free life.
But how do you know when, and how much to adjust your risk by?
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Risk Tolerance is Personal
Risk tolerance is always personal and unique to you.
Someone like Elon Musk can bet big, you could copy his every move, but since your risk tolerance dramatically differs, the impact of any outcome is likely to impact him differently to you.
To figure out your own resilience to risk, you must first know how much you are willing to put on the line for a given level of expected return. This in itself is difficult to assess as you are prone to optimism bias. But to help you, there are free online risk tests that will give you scores.
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Risk Management in Crypto
Performance-driven risk adjustment strategies recently started to get traction in the crypto community as volatility intensified and was exploited by those lucky ones in the know.
with experience, armed with a set of professional tools, and a cool head. Keeping up with such market volatility is not easy. That’s why now we see two distinct risk adjustment approaches – self-maintained and automated. Let’s dive into them.
A self-maintained performance-driven risk adjustment is a common approach usually used by newbies and veteran investors.
In a nutshell, it’s up to you. You need to know your tolerance to risk and adjust it with the market, at each turn. You must be able to follow the market, detect dangers or opportunities, take level headed decisions, and maintain your discipline day in day out.
You have the full control. You sell and buy as you see fit. You manage the funds according to your needs. The key advantage here is full control – no generic, one size fits all algo spoils your trade. Unfortunately, that is also a key disadvantage.
Under a self-maintained performance-driven risk adjustment strategy, you always have to rely on yourself.
You have no sunglasses and extremely bright sunlight can blind you from making clear logical decisions. Sure, some people can get by without them, but if you had a choice, wouldn’t you opt for a pair?
Long-term crypt investments demands discipline. You have to establish the entry and exit points, and follow the chosen strategy religiously. Its no easy task with a day job.
Even for example, Dollar-Cost-Averaging (DCA) tells you to invest every month. But often, the timings can get rough making you slack off, eventually making the investment strategy virtually nonexistent.
Nevertheless, 99% of crypto investors rely on self-maintained performance-driven risk adjustment, hence the average investors throws in the towl with 12 months (with huge losses).
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with Libertify’s AI power
Disciplined Performance-Driven Risk Adjustment
What Libertify offers is unique – a disciplined, performance-driven and personalized risk adjustment strategy. Let us explain.
Essentially, instead of maintaining full control, you rely on the automated mechanism that tells you what to do and when. Think of it in terms of the High Net Worth bank managers of Goldman Sachs, who manage millions of dollars on behalf of private clients.
Armed with years of knowledge and backed by the bank itself, they can tackle risk for you accordingly. They are sunglasses. They have the discipline and expertise that makes their clients resilient to market dangers. Not everyone is fortunate enough to have a private banker though. But that’s why we invented Libertify. We have changed the status quo.
Disciplined performance-driven risk adjustment strategy from Libertify tells you when to sell and buy or, executes action automatically if the client gives such permission. Automation combines discipline and cold, calculated trade execution. You don’t need to rely on intuition or remember to make a move.
Libertify will do everything for you. There are several key advantages of Libertify’s approach:
- 100% personalized for you: following a risk assessment quiz, every trade is tailored to your unique personal situation and financial goals.
- Bank-grade management: autopilot takes care of your funds 24/7;
- Mental stability: no need to check the market every minute or hour, your funds are safe, and you sleep well;
- Volatility cut: the crypto market is prone to large swings that always push you to sell. With autopilot, you are leaving the final decision to an algorithm developed by risk management pros with long years in this field.
Before offering Libertify to the public, we ran tests to see how effectively our product is tackling volatility. The platforms divided 100 risk profiles into 4 main categories: Conservative, Moderately Conservative, Moderately Dynamic, and Dynamic.
For Bitcoin, our Conservative autopilot solution cut the volatility by 34.2% over 2021 delivering a 291% increase in performance vs those who Bought and Held.
The reason: the hodlers suffered the full market drawdowns, so clawing back into the green was harder. Whereas the Conservatives exited early on in drawdowns, minimizing the losses.
The crypto market is still in its infancy, and huge swings remain the usual but annoying part of it.
No one wants to deal with the stress of losing 50% or more and worry about not getting the gains one has expected.
Hence that’s why a performance-driven risk management strategy is becoming increasingly important.