As the crypto winter draws mercifully to a close, it’s time to take stock and think carefully about protecting the assets that you own. Pic via Getty Images.
Coinhead
Crypto investors hoping for a bit of stability following 2022’s wild ride have been disappointed so far, writes Jonathon Miller- Managing Director, Australia at Kraken.
For seasoned crypto investors, this volatility is no surprise. But, each crypto winter to date has eventually thawed, and the industry has bounced back stronger as developers dedicated resources to build products and services with real world utility during the winter months.
The crypto industry, more than most others, both benefits and suffers from the exuberance of its user base. It can be easy for even seasoned investors to get caught up in hype cycles.
In my ten years in crypto I’ve found the best defence against ‘getting rekt’ is keeping a solid understanding of why you are involved in every digital asset.
For example, if you’re purchasing an NFT as a piece of virtual art, then your ‘why’ is to receive the artwork while financially supporting the artist you follow while paying royalties directly to the artist.
By purchasing assets like BTC or ETH, you may wish to carry out P2P transactions with loved ones, or possibly speculate on the assets long term appreciation in value.
Every asset has its own ‘why’ and your reason to believe may differ from someone else’s reasons for investing into an asset.
However, before entering any position you should understand what your ‘why’ is and keep it in the forefront of your mind as you navigate the crypto ecosystem.
Should a ‘spring season’ be upon us, then crypto enthusiasts must avoid falling into similar practices that contributed to the market downfall of 2022.
For many, 2022 came with a stark reminder of cryptocurrecy’s self custody principle – that if you have the understanding and means to do so, then you should consider storing your digital assets in a wallet that you retain the private keys to.
Regardless of whether the value of an asset goes up or down, if the private keys to your portfolio are controlled and operated by a third party, then it is no longer ‘your asset’.
Being a good crypto citizen involves active participation and not being a passive bystander. If you’re interested enough to invest in crypto, you should also be willing to take the time to properly understand how to keep your digital assets secure through self custody.
I always recommend exploring several kinds of self-custody wallets, including hot wallets (those connected to the internet) and cold storage wallets (where private keys are operated through a small hardware device).
Both hot and cold storage wallets have their pros and cons, which is why it is crucial to also examine your personal crypto use cases and risk profile before adopting a strategy.
For example, hot wallets can be suitable for quick transactions, but are usually less secure, which makes them more appealing to pro-traders who make countless transactions on a daily basis.
Whereas, cold storage is usually a more secure way to store assets, but is also less convenient, so it may suit a ‘HODLer’ that invests a recurring amount into an asset over a long term basis.
There are various online guides to help you find reputable providers for each wallet type, as well as extensive overviews of each wallet type’s pros and cons.
However, in adopting self-custody, whether in cold or hot storage, of your assets it’s vital to recognize that you are also accepting responsibility for them.
There is no self-help phone number to dial if things go wrong, which is why it’s vital to move carefully when transferring assets into and out of external wallets.
While self-custody holds true to the ethos of crypto’s origin story, it may not be right for everyone, so I suggest researching several self-custody options and exploring ways to spread holdings to mitigate risks of losses due to human error.
Much of the damage and pain crypto investors felt during 2022 derived from compromising on self-custody principles, losing sight of an individual’s reasons for being in crypto, and failing to call out bad actors in crypto communities.
My hope is that crypto traders, HODLers, and institutional clients can retain the lessons of the last 18 months in the forefront of their minds as they securely construct their portfolios ahead of the next bull market.
Crypto is all about removing costly intermediaries but also creating a fairer and more inclusive alternative financial system.
It’s a noble goal, but it was always going to be a long journey. We’ll get there faster as a community if we help each other avoid repeating yesterday’s mistakes.
This article was developed in collaboration with Kraken, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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