Investing in cryptocurrencies can be extremely risky. On May 19, more than $500 billion disappeared from crypto markets in 24 hours. The crash provoked some $8 billion in liquidations in an event called “Black Wednesday.” The cascading liquidations saw Bitcoin plunge more than 50 percent from its all-time highs of over $60,000 a few weeks before. Just like that, more than 20 percent of the total cryptocurrency market cap vanished.
Managing risk in crypto will always be extremely complex, and while many knew a correction was coming, very few expected it to be this drastic. But while risk management will always be more complicated in such a volatile environment, principles from traditional finance can be applied to reduce it and avoid being caught in such situations.