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The Lanturn Blog

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FUND MANAGEMENT

3 Tips on How to Mitigate Crypto Investment Risks

April 2022

Veli Kattoulas

You can’t deny the allure of investing in cryptocurrencies. In 2021 alone, the number of crypto users experienced a 178% surge from the year before, reaching 300 million, a figure predicted to reach 1 billion by the end of 2022.

One of the reasons for such a rise is the exponential returns promised. If you had invested $1,000 in Dogecoin in January 2021, you’d have over $120,000 in May 2021; that’s a 12,000% increase in four months, dwarfing the returns promised by the stock market, which produces 12-13% returns per year on average. Singapore is not immune to the crypto-mania craze, as 93% of Singaporeans have heard the term “cryptocurrency.”

However, it’s important to keep in mind that cryptocurrency is a relatively new instrument in the investing space. There’s no firm regulation or body that keeps crypto companies in check and protects customers’ interests. Similar to other tech advancements in the past, regulators and governments have a hard time keeping up with the rapid evolution of the crypto space to create meaningful legislation and regulations.

That’s why some say that cryptocurrency is too risky for the casual investor. The promised high gains may not be worth it in the end. Before dipping your toes into the cryptocurrency pool, you should know the following crypto risks.

 

1. Crypto is highly volatile 

While it’s true that investing in it can give you significant returns in a couple of months, it can also do the same thing to the downside, meaning you can lose your investment in a matter of hours or days. One example was the event on Wednesday 19 May 2021, where more than $500 billion disappeared from crypto markets in 24 hours, resulting in the price of Bitcoin falling very rapidly.

It’s advisable to invest in crypto with money you don’t mind losing. Never put the hard-earned cash that you use for daily necessities into crypto. Always use buffer money and have the patience to stick it out. Don’t panic and have a long-time view; if you’ve invested in Bitcoin when it first appeared, the 50% plunge meant nothing since you’ve gained thousands of percent over the years.

Other alternatives include investing in stablecoins, such as Tether (USDT), a coin that follows the US Dollar price, offering a sense of security and stability for investors. When the “Black Wednesday” occurred, only USDT experienced an upside. Remember, though, if you invest all your money in USDT, you won’t get the chance to experience the thrill of soaring gains.

You can also invest in stocks with companies that hold cryptocurrencies as assets. Cryptocurrencies are starting to get corporate backing. A few public companies, such as Tesla, MicroStrategy, and PayPal, have kept Bitcoin on their balance sheet. Purchasing these stocks means you get some exposure to the highs and lows of cryptocurrency without owning one. 

 

2. Cryptocurrency is highly vulnerable

Did you know that there was a recent US$620 million hack in crypto? This was not the first occurrence. Last year, one of the largest cryptocurrency exchanges in the world, Coinbase, disclosed that 6,000 customer accounts were hacked between March and May.

Hackers successfully exploited a multi-factor authentication flaw and phishing emails. These multiple incidents show that cryptocurrency exchanges are a prime target for malicious actors nowadays.

Yes, you can avoid dealing with the issue above by having a cold wallet, meaning that your crypto fortune is kept completely offline by storing it in physical storage that looks like a USB. Choosing this route is not entirely full-proof, either, as shown by Stefan Thomas, who kept all his crypto earnings in an IronKey device. He lost his password and only has two guesses left before being locked out of his fortune, totalling up to 7,000 Bitcoins, about USD 220 million, forever.

 

3. Prone to scams

Cryptocurrency is undeniably the shiny new thing in the investing space and gets a lot of attention. If you had a time machine, you’d surely want to invest in Amazon during the dot-com bubble burst in 2000. Most of its proponents argue that Bitcoin and its friends are on a similar trajectory.

For the sceptics, though, this is not necessarily the case, especially given the intangible nature of cryptocurrencies and other digital assets. Bad actors can use the euphoria surrounding cryptocurrency to create a fake crypto coin to do a rug pull, where the creators are gone without a trace, taking all money raised with them. One example was the Squid Game coin, piggybacking around the hype of the Netflix series in 2021.

Such an incident shows that not all crypto projects are legitimate; it all comes back to the investor to do their own due diligence and research. Never rely solely on other people’s recommendations, including your friends, celebrities, or influencers. It’s your job to know and believe what you’re investing in.


The cryptocurrency space constantly evolves, especially with new technologies and platforms being produced. As it becomes more mainstream, with the backing of countries like Panama and El Salvador, who recognise it as legal tender, Bitcoin and other digital currencies are unlikely to fade away anytime soon. If you’re tempted to jump on the bandwagon please be cautious when entering the space; keep your emotions in check and do extensive research on the projects that you’re interested in. Read our comprehensive guide on cryptocurrency investments in Singapore before you begin. You can also read our guide on how to be an accredited investor or our guide on getting a crypto investment license to expand your options.

Regardless of your cryptocurrency choice, Lanturn is ready to assist you in making the right financial decision based on your needs and goals. As one of the leading technology firms that provide end-to-end financial services and solutions for businesses, Lanturn has a proven track record in fulfilling every client’s needs. This includes helping clients navigate the brand new world of cryptocurrency. Our certified and experienced team is ready to advise you every step of the way.

Want to start your consultation today? Contact us now! Not yet ready to inquire? Watch our recent webinar on crypto investments as a beginner’s guide.

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