Managing Volatility – 5 Tips for Handling Crypto Assets

Investment firms, agents, and members of organizations have a fiduciary duty to make sure their clients’ assets are handled in a way that ultimately benefits their customers, investors, etc. That can be difficult with assets that are as volatile as cryptocurrency and NFTs, however. Nevertheless, managing these assets wisely is vital to maintaining profitability and compliance.

Following are some tips that can help you make the most of this volatile market:

1. Embrace the Chaos

This first tip is relatively simple—take advantage of your digital assets’ volatility. Investment portfolios frequently include a mix of high- and low-risk assets, and virtual tokens definitely qualify for the former. While this shouldn’t give you license to invest in whatever happens to be popular at the moment, it can be worthwhile to include a number of different volatile tokens in your portfolio. Should any of them appreciate, they can then be swapped out for more stable assets.

2. Do Your Due Diligence

Due diligence is a key component of any type of investing, and that includes cryptocurrency and NFTs. You want to make sure the token either has a decent track record or comes from a reliable, credible source. For instance, Bitcoin is generally regarded as a legitimate currency alternative, and it’s a comparatively stable investment for a cryptocurrency. On the other hand, something that was minted purely as a meme may not be the wisest choice.

In the NFT space, the same principle applies, though your options will look a bit different. NFTs minted by established companies are more likely to hold up than those put out by a new and unproven organization (unless that organization has a very sound value proposition, of course).

3. Purchase Shortly After Release—But Not Immediately

Often when a new token is minted, it will rapidly tank in value soon after release. If it seems like an otherwise legitimate source with a sound value proposition, you may want to pull the trigger on a purchase shortly after it drops in price. Take care that you’re not just following fads, though, and keep an eye out for illegal copycats.

4. Hold On To Assets Long-Term

It’s often worthwhile to hang on to virtual assets for a longer period of time. This is important because these assets may take a long time to peak. For example, it took years before Bitcoin reached its highest point, which meant that those who purchased it early with a long-term strategy ultimately benefitted more from their investment.

A long-term strategy can also have some positive tax implications. The IRS often treats these assets as property, making them subject to capital gains taxes. If held long-term (more than a year) before selling, those taxes can actually be lower than if you sold them after a few months. As such, this strategy can act as a simple way to minimize your tax exposure.

5. Use a Trust

Finally, and in keeping with long-term strategies, transferring digital assets into a trust can help you preserve their value. For instance, once transferred into certain types of trusts, they can be sold and swapped out for more stable investments, ultimately preserving your wealth for future generations, charitable donations, etc. It can also further safeguard your investments against taxation, though this requires a very specific structure and has other limitations.

Setting up a trust can be a complex process, and it needs to be structured a certain way to make sure it functions as intended. Getting a legal professional on board is definitely advised here.

Opportunities and Risks

Whether you’re handling your own funds or someone else’s, it’s important to properly assess the risks and take preventive measures when dealing with virtual tokens. That said, digital assets still represent a promising opportunity if you have a good strategy in place.