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As bitcoin surpassed the $100,000 mark this week, an increasing number of retail investors are poised to enter the cryptocurrency market, highlighting the critical importance of effective risk management strategies. The inherent volatility of cryptocurrencies presents significant challenges, making it essential for investors to adopt practices that safeguard their investments.

For a deeper understanding of risk management in cryptocurrency investing, read TheStreet Crypto's interview with Cambrian Asset Management's president Tony Fenner-Leitão below:

TheStreet Crypto: In light of bitcoin’s market volatility, what risk management practices should individual investors adopt to protect their investments?

Tony Fenner-Leitão, President of Cambrian Asset Management: Volatility is an inherent feature of cryptocurrency markets, and navigating it requires robust risk management. A cornerstone of any strategy is appropriate position sizing. By limiting exposure to any single asset, investors can ensure that no one position jeopardizes the overall portfolio.

Importantly investors should consider what role a crypto investment will play in their broader portfolios. Some approaches, typically employed by managers, can, for example, provide diversification and downside protection as well as exposure to potential higher expected returns. In this case a portfolio may actually benefit from what may seem like a disproportionately high allocation to cryptocurrencies.

Maintaining a long-term focus is essential. Day trading and short-term speculation often lead to suboptimal outcomes, particularly for less experienced participants. By adopting a long-term approach , individual investors can not only safeguard their capital but also position themselves to capitalize on market recoveries.

What advice would you give to new investors who are just starting to explore the world of cryptocurrencies?

For new investors, cryptocurrencies offer both significant potential opportunity and considerable risk. An initial key step is to decide on investment objectives. This leads to a series of decisions: to invest actively or passively, direct or via a manager. These approaches all have advantages and risks and depend on investor objectives. These decisions are especially important if the investor wishes to make a significant and long term commitment to this asset class. Encouragingly there are an increasing number of options available: ETFs, Futures and dedicated investment managers. Unlike in private markets, liquid managers have detailed monthly track records which allows an investor to understand the underlying strategy and how it performed in various market environments. The second important step is to link an investor's key objectives with an underlying strategy. If an investor has a high level of appetite for risk, feels confident of market timing and not being shaken out by sharp falls, then a passive beta or even leveraged approach might be appropriate. If an investor, on the other hand, cares about a “risk-adjusted” earnings profile then they would look to implement a strategy (directly or via a manager) that focuses on protecting downside, whilst still offering attractive absolute upside.