Top 5 Factors Every Crypto Asset Manager Should Consider
By Abhishek Bajaj
Over the past few years, advances in blockchain technology have generated massive interest in cryptocurrencies and in the potential of decentralized finance, also known as ‘DeFi’. As crypto takes off, we see a naturally growing demand for reliable investment options in the DeFi space.
To meet this demand, investment firms and hedge fund managers are expanding their services into a whole new sector – ‘Crypto Asset Management’. Due to the inclusive nature of this space, more and more people are also trying their hand at starting crypto funds. The most exciting of them are the new age crypto specialists, fashionably known as ‘DeFi-Heads’!
But while there is a lot of excitement in this space, there is also a serious lack of understanding of cryptocurrency and the underlying principles of blockchain technology. As a result of this general ignorance, investing in crypto and DeFi becomes challenging, and perhaps even dangerous! To avoid a bad experience, there are some unique subtleties in this space that asset managers need to consider. Note that the basic principles of traditional asset management (such as trend analysis) apply even in the crypto space. However, it is important to know the following factors to be safe from risks and to get a head start on the market!
- Understand the flow of money: Cryptocurrencies show some strong correlations with worldwide events, and not seeing the bigger picture will lead to skewed strategies. Crypto markets are affected by several features such as regulatory decisions and large-scale adoption (such as by Tesla or El Salvador). Even within the crypto space, we see a strong correlation between Bitcoin prices and the rest of the market (known as the ‘Alt Market’). Therefore, understand what the pivot points in price movements are and take advantage of relevant changes. In crypto, if you can assess the cash flow, you can predict the market like a stack of dominoes!
2. Tokenomics study: The beauty of cryptocurrencies is that the inner mechanisms that drive value are fully visible to everyone. Study the tokenomics and revenue models before investing in a crypto token. The supply and demand of a cryptocurrency is highly dependent on its tokenomic framework and utility. Understanding this core relationship between token price and structure can reveal hidden alpha!
3. Community Participation: The crypto community is a unique space where the best industry leaders freely exchange knowledge and interact with the masses. Leveraging the advice of expert investors and DeFi savvy can accelerate your own growth and understanding of the crypto space. Twitter, Medium, Youtube and other social media platforms are your best friend! Interact, network and study with the top managers and technicians. Remember that a crypto ecosystem is a socio-financial machine and skipping the social part is not recommended!
4. Risk Management: Cryptocurrencies are possibly the most volatile asset on the planet! Protect your capital first and seek profits later. A strategy that includes downside protection, stop-loss and take-profit policies will be able to survive the strong crypto bear markets and flourish during bull cycles. Make decisions based solely on strategy and not emotion! While these principles are common in traditional markets, they are all the more crucial to a successful crypto strategy.
5. Secure your crypto: While most managers focus on their strategies, few focus on the technical side of managing their assets. Crypto is highly vulnerable to phishing, hacking and exploits. Always secure your crypto in hardware wallets or in custodian services. DO NOT click on any links you are not sure of and do not trust anyone who offers
free or discounted services. Cyber security may be the least valued principle for crypto asset managers, but it is possibly the most important!
The author is the co-founder, DeFiVerse
