There is no doubt that cryptocurrency investing is a thrilling journey in the world of trading and money. It is indeed a place where both experienced traders and newcomers are always striving for better cryptocurrency investing strategies to make their money grow. After all, cryptocurrency is money that is purely digital. Neither the government nor banks have any control over it. Besides that, it uses high-tech and fancy math to ensure that it is highly secure. So, there is literally no way one can rob it from the owner.
Moreover, cryptocurrency is not just about buying and selling things online. Instead, it has already introduced new ways to do business. For instance, Ethereum introduced a fancy transition protocol called “Smart Contract”. Basically, it is a digital agreement that runs automatically and tells the participants the estimated outcome. Besides, smart contracts lead to decentralized finance which is a whole new application of crypto trading in finance.
With that being said, we believe it is highly essential for anyone to not only understand the bits and bytes of cryptocurrency investing but also understand how to do it and what are some of the best cryptocurrency investing strategies.
What is Cryptocurrency?
Cryptocurrency is a revolutionary form of digital currency. Unlike rupees, dollars, and euros which we all are familiar with and use every day, cryptocurrencies purely exist in digital or electronic form. So, they have no physical form or representation, unlike coins and notes. Instead, they are created, stored, and transacted digitally using high-tech technologies and cryptographic techniques. Nonetheless, here are a few things that you should understand about cryptocurrency:
- Digital and Decentralized: As we discussed earlier cryptocurrencies are purely digital. So, they do not have any physical form, such as coins, notes, and gold. Besides, they exist and operate on decentralized networks. These are sets of computers, called nodes, spread across the globe. The nodes control everything about the cryptocurrencies including their storage and transaction. Therefore, there is no central authority, like banks or the government, to control them.
- Blockchain Technology: Blockchain technology is the heart of cryptocurrency. It is a registry that records all the transactions in the most transparent and secure way. You can think of blockchain technology as a ledger that anyone in the public can access. Besides, each transaction in the blockchain is grouped together in a block. Then, this block is added to the chain of previous transactions. This is why this technology is called blockchain and ensures the safety and integrity of the transactions.
- Cryptography for Security: In cryptocurrency, “crypto” comes from the technique of securing information and information through codes called cryptography. Therefore, these currencies use cryptographic techniques to not only control the creation of new units but also safeguard transactions. So, it is extremely hard for anyone to access cryptocurrency transactions if they do not have the required information.
- Digital Wallet or Ownership: If you own any cryptocurrency, you get a digital key or a set of them. The keys prove your ownership of the cryptocurrency of any particular type. Moreover, the keys are stored in digital wallets. These are either software-based such as mobile or online wallets or physical-based such as any physical device. So, you use these wallets to send and receive cryptocurrencies.
- Borderless: Since cryptocurrencies are purely digital, they have no borders. So, you can send any amount of cryptocurrency any time and anywhere in the world. You do not have to go through any payment processes. Therefore, cryptocurrencies are getting more popular with each passing day for cross-border transactions.
- Transparency and Anonymity: The cryptocurrency itself is not only highly secure but any information attached to it is equally secure. Even though cryptocurrencies are recorded on the public ledger, details such as the cryptographic address or your identity can not be accessed or revealed. Therefore, cryptocurrency is pseudonymous.
- Volatility and Speculation: The cryptocurrency markets are highly volatile. Even in short periods, its prices can fluctuate significantly which can sometimes be a great investing opportunity while other times it can be highly risk to invest for traders and investors. Therefore, it is extremely technical and hard to speculate its prices.
- Diverse Ecosystem: Bitcoin was the first cryptocurrency. Now there are countless currencies, such as Ethereum, Dogecoin, and Tether. These are called altcoins and each of them has its purpose, technology, and features.
How Do You Invest in Cryptocurrency
Before we discuss some of the best cryptocurrency investing strategies, it is essential to learn what cryptocurrency is and how to invest in it. Investing in cryptocurrency is much like owning another financial plan. It is not only thrilling but requires you to understand some basic knowledge to be able to make money through crypto. Nonetheless, here is a snapshot of how to start investing in cryptocurrency today!
- Learn the Basics: Before you actually start investing in cryptocurrency, take your time and learn the basics. Understand what it is and how it works. Further dive into the different cryptocurrencies. However, remember that you do not need to know every cryptocurrency out there. Instead, focus on the few popular ones, such as Bitcoin, Ethereum, and Dogecoin. Fortunately, there are tons of resources, including articles (just like this one), courses, YouTube lectures, and more.
- Get a Wallet: Just like your physical money needs a wallet, you need to get a wallet for your cryptocurrency too. The purpose of having a wallet is to safely keep your digital money. Besides, there are different options that you can choose from, including a mobile app, software, or a hardware device. Nevertheless, choose one that suits your needs the best.
- Pick an Exchange: Whether you want to buy or sell cryptocurrencies, you will need to find a good cryptocurrency exchange. Popular exchange platforms, such as Binance, Coinbase, and Kraken, let you exchange regular money for any cryptocurrency you want. So, research well and find a reputable and trustworthy exchange once you get a digital wallet.
- Verify Your Identity: Once you find an exchange that meets your needs, you will have to verify your identity. You will need to submit a copy of some personal information or documents to these platforms. The purpose of verification is to know the customers better and avoid money laundering.
- Start Small: Most people think that they can invest any amount and get enough profit. However, that is not the case. When you first start, invest a very small amount or an amount that you can comfortably risk. After all, the crypto market is extremely volatile. So, the prices can vary rapidly.
- Diversify Your Investments: Instead of putting all your money into one of the cryptocurrencies, try diversifying. Pick a few and invest in all of them to reduce the risk. This way if one of the cryptocurrencies that you invested in does not perform well, you will not lose all your money. Instead, other currencies might make up for that one.
- Be patient and Practice Security: Investing in cryptocurrencies is not an opportunity that can get you rich overnight. Its prices can easily go up and down. Therefore, it is essential to be patient and have a long-term approach. Besides that, make sure that your digital wallet and exchange account are safe. There are a few practices that you should try including having a strong password, enabling two-factor authentication, and being careful against scams and phishing attacks.
- Keep Records and Consider Taxes: Depending on the location of residence, you may have to pay taxes on cryptocurrencies you own. So, ensure that you understand its tax obligations and keep records of the transactions. You can also choose to consult a tax professional.
Best Cryptocurrency Investing Strategies
As we discussed earlier, investing in cryptocurrencies is not only exciting but can be risky too. The crypto market changes in no time and the prices can go up and down. Therefore, it is essential to understand how to invest and practice some of the best cryptocurrency investing strategies. With that being said, here are our picks on some of the best and most actionable investing strategies.
1. HODLing Strategy
Back in 2013, the term “Holding” was mistakenly typed as “Hodling” in the Bitcoin forum. Since then, it has become a relatively popular term and strategy in the world of cryptocurrency investment. Besides, it is a long-term investment strategy and involves getting a cryptocurrency asset and holding it for a longer period of time, regardless of the short-term prices that keep fluctuating. Besides the prices, the cryptocurrency market turbulence is also neglected.
All in all, the HODLers believe that the crypto asset that they have chosen to invest in has a greater profit in the longer run. Nonetheless, if you wonder how HODLing works, here is a snapshot of why HODLing works.
- Riding Out Volatility: Most people believe that investing in cryptocurrency is way too risky due to its short-term price volatility. On the other hand, HODLers believe that cryptocurrency and the crypto market are destined to go higher in the long term. Therefore, they neglect the short-term instability of the prices.
- Avoid Emotional Trading: Since HODLers do not pay significant attention to short-term prices and market stability, they can make more calculated decisions. Because short-term investment can lead to impulsive and emotional decisions which often result in loss.
- Tax Benefits: One of the reasons why HODLing works is most countries comply with less tax on long-term investment in cryptocurrencies. Remember that it depends on the country of your residence. So, make sure that you verify tax regulations with a professional.
- Potential for Long-Term Gains: As we discussed earlier, HODLers believe that the cryptocurrency asset they have invested in will gain significant growth in the long run. Besides, the history of cryptocurrency has proven it well enough. Bitcoin gained substantial value growth since it was first created. Thus, HODLers who trusted in the long-term investment made a good amount of money making HODLing one of the best cryptocurrency investing strategies.
If you have decided to HODL your cryptocurrency asset, here are a few tips that you should not miss:
- Before you decide to HODL your crypto asset, make sure that you study bits and bytes of it and research well.
- Even though HODLing is an excellent strategy, do not invest all of your money in one of the cryptocurrencies. Try diversifying because it is essential to manage potential risks.
- It is still wise to stay up-to-date even if you have decided to HODL your cryptocurrencies for a longer period of time. Be aware of what is happening in the crypto market and keep your eyes open for any significant news and changes in the market.
- If you have decided to HODL your asset, consider having a hardware wallet for security. These are physical devices to store your cryptocurrencies offline. Besides, it can also protect you from online threats.
2. Day Trading Strategy
Day trading means that you buy and sell a cryptocurrency asset on the same day hoping to make quick profits. Consider buying any cryptocurrency in the morning. Then, you keep checking its value throughout the day hoping to see if its value grows. If its price goes up a bit, you decide to sell it to make a profit. Alternatively, if the prices go down, you can also decide to sell to minimize your loss. Day trading can sometimes be very profitable while other times it can be risky and challenging too.
One of the obvious advantages of day trading is one can make quick profits, sometimes in a few hours or even minutes. Besides that, it is exciting for some people. After all, it is much more like a game where you have to make quick decisions for which you can either be rewarded or challenged.
On the other hand, one of the challenges of day trading is its high risk. Because prices can go up and down in no time. So, if the crypto market goes against your decisions, you lose all your investment. Therefore, day trading can be stressful too. Moreover, day trading requires a good understanding of various investment factors, such as charts, technical analysis, and market trends. Therefore, day trading is not recommended for beginners.
Despite all the advantages and challenges of day trading as one of the best cryptocurrency investing strategies, here are a few tips if you have decided to start day trading:
- Before you start investing daily, make sure to decide how much money you are willing to invest and risk each day.
- Utilize stop-loss orders at the right time. Stop-loss orders are auto-sell orders you may get if the prices hit a certain limit. Their main purpose is to minimize your losses if the market goes against your decision.
- As a day trader, you have to keep educating yourself on news, trends, and everything else. After all, the more you know about crypto investment and day trading, the better you become.
3. Swing Trading Strategy
Consider you are at a beach, watching the sunset and observing the waves. In cryptocurrency trading, swing trading refers to waiting for the prices of the cryptocurrency to go up for you to invest. Once the prices reach a good limit, you are ready to invest and buy the cryptocurrency asset. But once you see the wave has reached its highest limit, you sell back your investment to make some profit. Nonetheless, here are a couple of reasons why people do swing trading:
- Middle Ground: Swing trading provides a middle ground for traders who are neither willing to risk their investment in day trading nor HODL their money. So, it is a comfortable strategy for traders who want to make profits in a few days or weeks. This is why it is one of the best cryptocurrency investing strategies.
- Technical Analysis: Swing trading relies on technical analysis. Traders use charts and technical indicators to analyze the market condition and whether or not the prices will go high.
In addition to that, there are a couple of challenges to swing trading which are as follows:
- Market Fluctuation: Since the cryptocurrency market is never stable and keeps fluctuating, it is extremely hard to predict when to buy or sell your cryptocurrency asset.
- Emotions: Since short-term trading involves making impulsive decisions, it is very common to feel frustrated and emotionally unstable if the prices go against your decision.
Despite all the challenges, if you have decided to invest in cryptocurrency as a swing trader, here are a few tips to help you along the way:
- Plan Ahead: Even when you are swing trading, make sure that you analyze the market regularly and make plans as to when to buy and sell your cryptocurrency assets.
- Utilize Stop-Loss Order Wisely: As we have discussed earlier, stop-loss orders help you minimize your losses if the market goes down. So, you can choose to sell your cryptocurrency investment automatically if the prices do not perform well.
- Keep Learning: Whichever trading strategy you choose, it is essential to invest your time and keep educating yourself about the market, its trends, significant news, and much more.
- Risk Management: A swing trader is much like a surfer who observes the waves carefully. He only jumps on when he sees that the waves are going in his favor. So, it is essential to learn how to manage risks and face trading challenges. Besides that, you have to be patient enough.
4. Dollar-Cost Averaging Strategy
Dollar-cost averaging is a clever way of investing in cryptocurrency because you do not have to worry about the prices fluctuating. Consider you decide to invest $100 in the cryptocurrency. Let us say that you buy any cryptocurrency asset worth $10 because the prices are low. In the second and third weeks, the prices are a little high, therefore, you invest a little less. In the fourth week, when the prices are lower, you will buy more.
Over time, you will end up investing more when the prices are lower and less when the cryptocurrency market is not in your favor. Nonetheless, here are a few more reasons why most traders love the Dollar-Cost Averaging strategy:
- Consistency: Since dollar-cost averaging is a straightforward strategy, you do not have to invest a lot of time and effort in deciding when and how much to invest. Essentially, you make a plan and stick to it regardless of how the market is performing.
- Reduced Risks: Traditionally people invest all their money at once which increases the chances of their loss. However, when you are trading using the dollar-cost strategy, you are investing at different prices. Therefore, you spread out the risk of losing all your money.
- Long-Term Growth: The purpose behind the dollar-cost averaging strategy is that over time the prices that you have paid for your cryptocurrency asset will be less than if you had invested all at once.
Besides the advantages, there are a few challenges that anyone who intends to invest using the dollar-cost averaging strategy amongst the rest of the best cryptocurrency investing strategies. A few of them are as follows:
- Missing Out on Big Gains: After all, dollar-cost averaging focuses more on minimizing your risks while less prioritizing short-term gains. Therefore, you might regret your decision if the prices of cryptocurrency prices suddenly skyrocket.
- Patience Required: Dollar-cost averaging is a long-term investment strategy. It takes time to see a significant profit from your investments. Therefore, you have to be patient even when the market is not performing well.
There are more advantages of dollar-cost strategy than its challenges which makes it to our list of best cryptocurrency investing strategies. Nonetheless, here are a few tips if you want to start investing:
- Choose a Schedule: If you have decided to invest, make sure that you choose a schedule. You can either choose to invest weekly or monthly. Then, ensure that you stick to the plan.
- Automate Your Investments: If you are trading part-time, you can also choose to automate your investments. There are many exchanges that offer such a feature. So, you can also set up to automatically invest regularly.
- Stay Informed: Whichever strategy you choose from the best cryptocurrency investing strategy, make sure that are always aware of what is happening in the market. Keep an eye on significant news, changes, developments, and more.
- Long-Term Profit: As we have discussed earlier, this strategy is for those who are willing to invest their money for a long period of time. After all, it is not a get-rich-overnight scheme.
5. Diversifying Strategy
Let us say you are trying out every dish at the buffet at your friend’s birthday party which means that you prefer diversification on your plate. Similarly, diversification, in cryptocurrency, means that you are spreading your investment across various types of cryptocurrencies. After all, investing all your money in a single cryptocurrency asset is extremely risky. Therefore, diversification had to make it to our list of best cryptocurrency investing strategies.
Imagine you are deciding to invest $1500 in cryptocurrency. Instead, of putting all your money in a single asset, you should diversify your investments. For instance, invest $500 in Bitcoin, $600 in Ethereum, $200 in Dogecoin, and the remaining in a couple of others. This way if one of them does not perform well, your money will still be safe with the other cryptocurrencies. Nonetheless, here are a couple of reasons why professional investors love diversification:
- Risk Reduction: As we know very well the market does not perform linearly. It may sometimes outperform your expectations making you huge profits. Meanwhile, other times it can also underperform. Therefore, it is wise to spread your money across different assets to reduce the risk.
- Potential for Growth and Profit: If you spread your investment across different cryptocurrencies, you will still make a profit if one of them does not perform well. All in all, you can balance out the ups and downs in your portfolio.
However, there are a few challenges that every investor faces, including the professionals. For instance, if diversifying your investments across different assets, you will need to research well which is very time-consuming. Besides that, some people overdo it while diversifying their investments. Then, it becomes challenging to manage. Nevertheless, here are a few tips that might help you to wisely invest in cryptocurrencies.
- Select Carefully: Before you start spreading your money across different cryptocurrency assets, make sure that you research well. You should only select those cryptocurrency assets that you believe have the potential to grow.
- Set a Balanced Portfolio: In cryptocurrency investment, a wise move would be to maintain a balanced portfolio. You should not randomly put money anywhere you want. Instead, set clear goals and stick to them. For instance, you should not invest more than 5% to 10% of your total investment in a single asset.
- Stay Updated: I can not stress staying informed enough. When investing, you should always be up to date. Keep your eyes wide open for any updates and news in the market. Besides, you should always be ready to make decisions even if they seem risky sometimes.
Maximize the ROI
ROI or “Return on Investment” is basically comparing the value of a cryptocurrency asset to its original value. Its purpose is to determine how much value the cryptocurrency asset has gained or lost since the time you acquired it. It is a common metric that traders and investors use for Bitcoin, Ethereum, and altcoin to find out whether or not an investment is worth it or whether the cryptocurrency asset that they have already invested in is performing well.
To calculate the ROI of an investment, reduce the price of the asset by its selling price. Then, divide its result by the actual cost of your investment. For instance, if you have bought Bitcoin for $5,000 and sold it for $20,000. You have received three times of the money invested. So, its ROI will be 3. Its formula is as follows:
ROI = [( Present value of the investment – Initial value of the investment) / Initial value of the investment ] x 100
Moreover, if ROI is positive, it means you have earned a profit indicating good investment. However, if it is negative, then the asset has dropped its initial value. Therefore, being able to maximize ROI can be one of the best cryptocurrency investing strategies. Nonetheless, here are a few tips to help you maximize the ROI of your investment.
- Utilize Stop-Loss: As we mentioned before a stop-loss means your cryptocurrency investment is automatically sold as it hits a certain value. Using stop-losing helps make sure that the value of your asset does not go down a certain limit.
- Take advantage of Short-Term Opportunities: Another way to increase the ROI of your trade or investment is to take full advantage of the short-term opportunities. For instance, if you have bought any cryptocurrency asset for $20, you should sell it when the price reaches %60.
- Make sure that you have enough funds: It is one of the most important things to consider before investing or trading cryptocurrencies. After all, if you do not have enough funds, it will be very hard to continue in the crypto market.
- Do not trade all day: Whatever you do in life, you need breaks from time to time. Therefore, we suggest that you should not spend all of your time on investing and trading. Instead, take breaks in between.
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