Common Risks in Cryptocurrency and Coping Strategies: A Practical Guide from Liquidation Crises to Long-term Survival

1. Market Volatility Risk: Over 70% of liquidations stem from extreme market conditions

Nature of the Risk: Cryptocurrencies trade 24/7, with daily price fluctuations often exceeding 20% (e.g., in March 2024, BTC plummeted 35% in one day), making leveraged positions susceptible to forced liquidation.

Typical Case: In 2022, LUNA's price dropped from $119 to zero, causing countless leveraged investors to be liquidated instantly.

Coping Strategies:

1. Position Control Rule: No single trade should exceed 10% of the principal, leverage ratio ≤ 5 times (avoid leverage above 10 times);

2. Dynamic Stop-Loss System: Set a hard stop-loss of -15% for spot trading, and reduce positions early when contract funding rates trigger anomalies (e.g., if above 0.1% for 3 consecutive hours);

3. Volatility Hedge: Allocate both BTC/ETH (stablecoin pairs) and high-volatility altcoins, with a ratio not exceeding 7:3.

2. Contract Trading Risk: 90% of beginners fall into the “Gambler's Mentality” risk trap:

- Funding Rate Arbitrage Trap: When a certain cryptocurrency's funding rate remains positive for an extended period (e.g., in 2023, PEPE contract rates reached 0.5%/8 hours), long holders must pay high costs, leading to long-term losses;

- Liquidation Risk: Under extreme market conditions, exchanges' automatic liquidation mechanisms may result in “negative balances” owed to the platform (in the 2021 May 19 crash, several platforms experienced liquidation cases).

Practical Strategies:

1. Inverse Leverage Rule: Use 3x leverage when profitable (as per user cases), switch to 1x leverage when in loss, avoiding the “double down” gambler mentality; 2. Time Cycle Constraint: Do not hold contracts for more than 4 hours, else forced liquidation will switch to spot trading (data shows that holding for over 6 hours increases liquidation risk by 3 times); 3. Contrarian Indicator Monitoring: When the long-short ratio of contracts on exchanges exceeds 3:1 and positions reach a 30-day high, hedge by opening contrarian positions (historical accuracy rate of 68%).

3. Project Fraud and Zero Value Risk: Over 2000 scam projects annually. Types of scams:

- Rug Pull: For example, in 2024, the TOMO project team directly sold 90% of tokens after private placement, causing the price to drop 95% within 24 hours;

- False DEFI Protocols: Imitated contract codes containing backdoors, resulting in users’ stakes being transferred immediately (in 2023, losses from DeFi scams exceeded $4.2 billion).