4 Ways To Reduce Your Risk in Crypto

Luno Discover x MoneySmart - 4 healthy habits to reduce your crypto risk

This post was written in collaboration with Luno Discover. While we are financially compensated by them, we nonetheless strive to maintain our editorial integrity and review products with the same objective lens. We are committed to providing the best information in order for you to make personal financial decisions with confidence. You can view our Editorial Guidelines here.

Fun fact: Did you know that NASA astronauts have to do 2.5 hours of exercise a day when they’re in space? Just like how these real-life space explorers have routines to stay in tip-top shape, we investors need our own “regimen” to keep our finances healthy, too.

Healthy habits are essential in all investment endeavours… but they are even more crucial if you’re looking to explore the world of crypto. As much as we’ve seen the triumphs of crypto, we have also seen its worst. Trip-ups do happen in the risky world of crypto, especially to newbies without sufficient experience or the right habits in place.

For beginner space cadets, having good habits could make all the difference between a pleasant journey or (touch wood) a mayday mission.  Here are 4 healthy habits for a safer sojourn:


1. Research & education

You wouldn’t jump into a space mission without the appropriate training and knowledge, would you? As with any risky enterprise, knowledge is essential to any successful crypto journey.

Let’s do a quick test. Is blockchain and cryptocurrency the same thing? How about blockchain and bitcoin? Are NFTs artworks?

Related: Take This Quiz to Find Out How Ready You Are For Crypto

If your answer to any of the above is yes, you need to DYOR (Do Your Own Research), period. There are many basic crypto concepts that fall through the gaps, and many enter the market without addressing those gaps. So before you commit your money to any cryptocurrency project, do your due diligence and research it thoroughly.

Start by carefully poring over the whitepapers and roadmaps published by the project. As an investor, you need to know exactly what you’re getting into and where your money is (supposedly!) going. Dig into as much detail as you can: Check out the project stats, adoption rate, track record, etc. to make sure it’s up to expectations and to sniff out anything fishy or odd. Tedious, but this is your hard-earned money we’re talking about here — once you get the hang of it, it gets easier, we promise.

You’ll also need to check against trusted third-party sources. Google the project name and find out what kind of news coverage it’s received so far. A credible crypto project should be covered by legitimate websites such as CoinDesk, CoinTelegraph and Crypto News — and possibly traditional top media like Forbes and Financial Times.

Doing all this homework will get you as informed as possible so that you truly understand what you’re getting into and are confident that your investment is one that allows you to sleep well at night.

While you’re reading up, make sure to brush up on the basics with educational apps and platforms such as Luno’s very own education portal Luno Discover and Luno Singapore’s Telegram Channel. As the crypto space evolves at a rapid clip, it’s important to refresh your knowledge regularly and stay up to date.


2. Investing practices

So you’ve done the required reading and background checks, and everything looks great so far. You feel confident about this venture and are ready to buy!

But before you plunge in, take a moment to check that your investing practices are sound. These include…

Invest only what you can afford to lose: Crypto is a high-risk investment and you can lose your investment capital. So make sure you invest only spare cash and not the money you need for essentials.

Limit high-risk investments: As a volatile asset, cryptocurrency may form only a small percentage of your entire investment portfolio — especially if you take a lower-risk approach to investing. This reduces the potential damage to your finances in the event of a major price drop.

Make sure your portfolio is diversified: Also known as not putting all your eggs in one basket. Again, to reduce risks, you want to have a whole range of different investment assets that are, ideally, as unrelated as possible. Diversification may look like investing in multiple asset classes that are or are not crypto, different coin types with different risk levels — even if they’re not as exciting.

Only consider regulated platforms: The Monetary Authority of Singapore (MAS) awards digital payment licences to crypto platforms with proven track records and industry-leading risk management practices. So if you’ve decided to go ahead, pick a licensed platform to benefit from the most consumer protection (Luno Singapore recently received in-principle approval from the Monetary Authority of Singapore to provide crypto services in Singapore).

Underrated opinion — choose a platform that also prioritises the customer experience. Many platforms have ended up halting withdrawals during the recent meltdowns which caused Twitter to “explode” with complaints. It also garnered a bad taste in everyone’s mouth since their funds were stuck indefinitely. 


3. Store crypto securely

As with anything digital, crypto assets are liable to hacking. Leaving your crypto holdings unsecured is like leaving your credit card details out on the internet — hackers see it as “free money”. So make sure your crypto is stored safely and, preferably, offline.

To start with, you probably already have an online crypto wallet (a.k.a. “hot wallet”) on your crypto trading platform. Hot wallets are encrypted such that only you can take out the balance with your private key/s (this might be termed as “seed phrase” or “recovery phrase” as well) — so make sure to not share your private key with others or leave it lying around, including on your computer!

If you have any excess crypto balance that you do not intend to trade or spend in the short term, consider moving it to an offline or “cold wallet” (often a USB device). Taking it offline reduces the risk of hacking since it is essentially “offline” and now needs to be physically plugged in to access. In addition, cold wallets are password-protected, so you don’t need to worry about them falling into the wrong hands.

What if someone throws away your cold wallet by accident? As long as you keep your private key safe with you, you can order a new wallet and input your recovery phrase to transfer your crypto balance to the new device.


4. Always be aware

You must have seen those anti-scam and anti-phishing PSAs a million times by now, but it’s worth repeating here anyway. Crypto transactions are just like any other online transaction — so always check, double-check AND triple-check!

Always scrutinise the website address before you log on to your crypto trading platform and keep your eyes peeled while connecting your crypto wallet or making transactions.

A small tip: When searching on Google for your desired website, make sure that you are not clicking on an ad that gets bumped to the top. You’ll probably want to put on your reading glasses before doing anything crypto-related because just one letter or number can make all the difference (“1” and “I” may look similar!).

Not only would your hyper-vigilance protect you against scammy or dodgy goings-on, it also helps you avoid basic careless mistakes like transferring money to the wrong person. (D’oh!)


Know yourself and your investing behaviours

Apart from building healthy habits for a successful voyage, it’s also essential for beginner crypto-nauts to understand their own readiness before taking the leap. You should never feel pressured to invest before you’re ready…and of course, try not to invest because someone else said so!

Take our quiz to gauge your crypto knowledge and mental preparedness. Are you a Rookie Rover, Prepared Pilgrim, Savvy Space Wanderer or Wary Watcher? And more importantly, what should you do to level up? 

This partnership between MoneySmart Singapore & Luno Discover and the content created is for educational purposes only. Luno Singapore has been awarded in-principle approval from the Monetary Authority of Singapore (MAS) under the Payment Services Act 2019. Cryptocurrency is a high-risk investment. The value of cryptocurrency can fluctuate significantly and you may lose the capital you invest. Before investing, we urge you to educate yourself about cryptocurrencies and to familiarise yourself with the risks involved, which are detailed in Luno’s Risk Warning.

This article was not written by the licensed entity, MoneySmart Financial.