Top 8 Best Cryptocurrency Investment Strategies for Beginners: The Ultimate Guide
Crypto Investment Strategy for Cryptocurrency Beginners to Start Investing in Cryptocurrency.
Best cryptocurrency investment strategies: Bitcoin is no longer a stranger but has gained mainstream adoption over time. It introduced the world to blockchain or distributed ledger technology and as a crypto asset, it is the center of the universe.
However, an entire plethora of crypto assets has been created to support a wide range of use cases and applications focused on verticals such as identity management, data storage, gaming, banking, lending, social media and streaming.
Cryptocurrencies – Bitcoin and alternative coins – were among the best performing asset classes in 2021 as more investors gained entry into the crypto market trying to capture growth from digital investments that have the potential to increase in value and profit.
It is an encrypted form of digital currency that is extremely volatile in investment markets globally. Cryptocurrencies have different names coined by companies that issue them.
The major reason why these digital assets are gaining popularity with investors is that the cryptocurrency markets are open daily to all interested in investing across the globe.
But cryptocurrencies are inherently risk assets that are prone to wild price swings.
This is one among many risk factors that crypto investors must consider if they want to be profitable investing in this emerging asset class that now has a total market value of more than $2 trillion.
Investing in digital assets is not all that different from investing in traditional assets like stocks and bonds.
As a result of Bitcoin being the pioneer of the industry, virtually every other crypto asset is called an alt-coin. Alt-coins can be categorized in a few different ways.
Cryptographic assets as a new superclass of Investment Vehicle
In their 2016 white paper “Bitcoin: Ringing The Bell For A New Asset Class” ARK Invest’s Chris Burniske And Coinbase’s Adam White harnessed the idea of Bitcoin being the first of an entirely new ‘cryptocurrency’ asset class.
We have elaborated these theories “to create a hierarchical classification system and naming conventions for what is not only a new asset class but a new superclass—Cryptographic Assets—created by distributed ledger technology.”
In their white paper, Burniske and White noted that bitcoin can, in principle, function across all three of Greer’s asset superclasses at the same time.
This fundamental economic property is the General Taxonomy’s first basis for a definition of Cryptographic Assets as the fourth superclass under Greer’s classification. The second component definition for this new asset superclass can be referred to as its digital, distributed, permissionless, and cryptographical nature.
General Cryptographic Assets – Definition
General Cryptographic Assets are those assets that “represent programmable value that can be used freely by anyone, in any sector of industry and society, as a capital, transformable/consumable, or a store of value asset.”
In addition “these assets also serve as the foundation where Protocol Tokens are created, issued, and operated.”
General Cryptographic Assets are one of the two main categories which structure the four types of crypto assets.
Put simply, general crypto assets are anything of value that can be programmed. It should be added that we are still talking about cryptocurrencies based on blockchain here, so the programming is done in a way that is decentralized and encrypted.
General Cryptographic Assets – Taxonomy
Hence, the General Cryptographic Assets family can further be divided into
- Payment Cryptographic Assets, and
- Platform Cryptographic Assets
as the following illustration highlights:
Payment Cryptographic Assets – Definition
Payment Cryptographic Assets are defined as “a general form of money with the potential to capture global M1 and M2 money supply.” by the General Taxonomy
That is, “monies that are very liquid such as coins and notes in circulation and other money equivalents that are easily convertible into cash (M1), in addition to short-term bank deposits and 24-hour money market funds.”
They are the first of the four types of crypto assets.
Payment cryptographic assets are the cryptocurrencies you can use for paying for goods and services.
Examples of Payment Cryptographic Assets
Most of the world’s less-educated population thinks about crypto assets like cryptocurrencies, i.e. medium of payment. This might be explained by the fact that most crypto assets today are still belonging to this family of crypto assets:
- Bitcoin Cash
and many, many more as the following image illustrates:
Platform cryptographic assets
Platform Cryptographic Asset is a distributed protocol that integrates high-level programming capabilities and is not limited to peer-to-peer electronic transfer of value.”
While their main economic activity is not seen as capturing global M1 and M2 money supply, their breadth and depth in the ecosystem make these assets a potentially attractive store of value.
They are the second of the four types of crypto assets.
Platform crypto assets could also be referred to as infrastructure blockchains. They are crypto assets that “allow stuff to happen” in the crypto world, the most fundamental enabler of the crypto world.
Examples of Platform Crypto Assets
The following ten “cryptocurrencies” or crypto assets are examples of platform cryptographic assets:
For additional examples, see the following illustration:
What is Protocol Tokens?
Protocol token is defined as Level-1 or base layer tokens, they are native to a blockchain and are necessary for the operation of a given platform.
Protocol Tokens “represent a claim to a capital, transformable/consumable, or a store of value asset.
However, since they can only capture a specific market segment this effectively makes them volatile.”
Instead of key metrics, he assigns each Protocol Token a single NAICS classification that reflects the specific industry of its main economic activity.
Protocol Tokens are the second of the two main categories that structure the four types of crypto assets.
Bitcoin, for example, is a protocol token, not only because it is what users send and receive over the network, but because it is also how miners (payment processors) get compensated for supplying their computer power.
Another protocol token, Ethereum is by far the most prominent and popular alt-coin. It has the second-largest market capitalization of $513 billion, behind only bitcoin ($1.04 trillion).
It was created in 2015 by Vitalik Buterin, who was looking to build a blockchain platform that could run and execute any type of software program or application. Bitcoin is relatively rigid in its composition, which is by design, as more functionality offered by a blockchain can also create additional security vulnerabilities.
Ethereum operates in a similar manner to Bitcoin, where miners expend substantial amounts of computer power to add transactions to the network.
That said, there are many other prominent blockchains with their own protocol tokens, with some of the largest being Solana, Algorand, Cardano, Binance Smart Chain, Avalanche, EOS, and Polkadot.
Protocol Token taxonomy
Protocol tokens are divided into two major groups
- Application Tokens, and
- Side Chains
as illustrated in the following:
Application Tokens – Definition
Application Tokens are “tokens that are native to decentralized applications and have a cryptographic asset associated with their use or monetization, without locking value in its parent protocol.”,
If the base layer of a blockchain is the operating system, then decentralized applications (dapps) are the programs that run on top of them.
Many of these applications have their own tokens (known as dapp tokens) that are also freely traded on many exchanges.
You may have heard the term “dapps”, decentralized applications. Application Tokens are used in various ways in such decentralized applications, e.g. you can pay with them inside of a certain website, but also exchange them back into currency on an exchange.
Dapp tokens first came to the limelight in 2017 and 2018 during the initial coin offering (ICO) craze, when many founders raised millions—sometimes billions of dollars——through token sales to fund product development.
It is worth noting that the vast majority of these ICO projects failed and the value of their assets went to zero, which was a reflection of the novelty, hyperbole, and excitement of the space.
Nonetheless, today there are still dozens of dapp tokens in existence with market capitalizations in the hundreds of millions or even billions of dollars that underpin applications with real utility and actual business operations that make money, headlined by decentralized finance (DeFi) tokens. Some of the most prominent include Compound, AAVE, Uniswap, SushiSwap, Curve, PancakeSwap, and Maker.
Examples of Application Tokens
The following ten crypto assets are considered Application Tokens, among others:
Side Chains – Definition & Explanation
“Side Chains are formed by locking value in the parent chain, and sending it to a pegged distributed ledger.”, writes Delfin.
In the case of Bitcoin, this works, for example, by first sending funds to a specially formed Bitcoin address. The funds are then out of the sender’s control and completely immobilized.
Once the immobilization transaction is sufficiently confirmed by the network, a message is sent to the Side Chain, containing:
- proof that the funds were sent to that special address on the Bitcoin network
- confirmation they are therefore immobilized
- confirmation that the sender was the one who did it
The Side Chain then creates the appropriate number of tokens on its own network and gives the sender control of them, allowing the sender to transact with those funds on the pegged chain under whatever rules that chain chooses to implement.
Side Chains are the fourth of the four types of crypto assets.
Side chains help solve an important problem in the crypto world, speed. Instead of calculating everything in one big blockchain, a side chain can be used to take some things out of the calculation while still assuring everyone that in the end, the right amount will go back into the main blockchain.
Forbes’ Sherman Lee writes about Side Chains:
“Another technology that could see more widespread use in the coming years is side chains. A side chain is defined for one specific use case. There can be multiple side chains where different tasks are distributed accordingly for improving the efficiency of processing.
Maybe one application needs to optimize for high speeds and another needs to optimize for large computations. In any case, side chains can be used to handle commercial blockchain usage.
CryptoKitties would have greatly benefitted from an optimized high-speed side chain. At one point, they jammed up the Ethereum blockchain with 25% of all transactions coming from their application.”
Examples of Side Chains
Side Chain crypto assets are for example:
For other examples, see the following illustration:
Cryptocurrency Investment Strategies for Cryptocurrency Beginners
- Yield Farming
- Buy and Hodl Strategy
- Dollar-Cost Averaging
- Value Investing
Staking and Passive Income in Cryptocurrency Investing
For many investors, exposure to spot market prices has been risky and/or lucrative enough for their first forays into crypto. However, as the industry matures we are starting to see ways that investors can earn passive income on their holdings. This strategy can help top up gains or hedge against price risk.
The top strategies are staking and yield farming. I’ll break each one down individually.
Staking is the act of posting certain crypto assets as collateral to participate in the operation of a blockchain. As compensation for locking upholdings, users receive regular rewards in a manner similar to interest payments.
Staking is useful for blockchains that operate a proof-of-stake (POS) consensus mechanism.
This is a different approach than proof-of-work (POW), which is the computationally intensive and expensive mechanism employed by bitcoin, litecoin, bitcoin cash, and many other tangents of the original blockchain.
Although POW has proven itself to be highly secure and effective in most cases, there are growing concerns about its energy usage and associated carbon footprint.
In addition, POW blockchains have scalability and throughput issues (Bitcoin can only process a handful of transactions per second), while POS platforms can handle hundreds of thousands per second.
Prominent stake-able protocols include Solana, Algorand, Cardano, Polkadot, and Tezos.
Additionally, while Ethereum remains a POW blockchain, it is possible to stake its native asset ether. This is because Ethereum is currently undergoing a multi-year transition from a POW to a POS consensus mechanism so that it can support the high demand for its computational resources.
Please note that POS consensus mechanisms are not homogenous and each blockchain network may use a different way of calculating staking rewards, taking into account various factors such as:
Minimum staking requirements
- Lockup periods
- Payout schedules
- Reward amounts
Aside from purchasing DeFi tokens, it is also possible to earn them through a process known as yield farming.
Yield farming can be thought of as DeFi 2.0. Before, when you would provide liquidity to a decentralized exchange or lending protocol, you’d simply earn a fee or earn some interest.
However, last summer Compound kickstarted a new trend that rewarded users with governance tokens, COMP in this case, as an incentive program.
Consistent with the decentralized ethos of the space, governance tokens are mechanisms for each protocol’s respective founders to cede control of the platform and turn it over to the users.
In turn, token holders can use their ownership shares for additional rewards or vote on governance decisions that vary between protocols.
In fact, so many governance tokens and yield farming opportunities were created that a group of DeFi portfolio managers was built to help shift user funds between opportunities so that they could maximize rewards and reduce transaction fees.
Think Betterment or Wealthfront for crypto. One of the most prominent of these is yearn.finance, whose governance token YFI is valued at $28,000.
Buy And Hold Crypto
HODLing is when you buy a digital asset and then hold onto it in your digital wallet for a relatively long period of time.
When you choose the buy and hold strategy, you’re not really going to be doing much cryptocurrency trading. You simply buy coins and file them away.
If you don’t plan on selling any of your assets for years and years, then the HODL strategy is probably going to be a good choice for you — particularly if you’re trying to build a nest egg for the kids in your life.
When it comes to purchasing crypto to hold for yourself or a child’s future, the best solution is to set up a Bitcoin Savings account through an account provider like Bitrex Plus a product of Bitcoininvestmentrex.com.
Here at Bitcoininvestmentrex.com, we provide excellent cryptocurrency investment plans you can easily invest in crypto for yourself or a child. It works like this:
Bitrex Plus Savings account can use a crypto wallet to invest in cryptos like Bitcoin or Ethereum.
Dollar-cost averaging is a crypto investing strategy that focuses on investing fixed amounts of your money into cryptocurrencies at regular intervals.
This strategy operates on the basis that the crypto market often shows volatility, which means that timing is difficult.
By investing relatively smaller amounts of money on a regular basis, you should theoretically be able to minimize your risk while maximizing your market exposures.
Essentially, dollar cost averaging spreads your investments over time to insulate you from rapid price movements. That means the cost of your investment will get averaged out over time.
Value investing is a crypto investing strategy that assumes most assets are undervalued — which means their actual worth is higher than the assets are trading for.
If you’ve ever heard of investor Warren Buffet, he’s the one responsible for making value investing a pretty common investment strategy.
Value investing is all about finding an asset you think is trading for less than it’s worth. You’d then purchase that asset under the assumption that its market price will go up over time.
The primary challenge here is figuring out which assets are genuinely undervalued. This strategy takes a lot of time, research, and practice if you want to generate a profit.
Aside from making investment decisions, many of you will have questions about the specific mechanics of crypto investing.
This is somewhat novel to the industry because there are few options to buy crypto assets from traditional brokerage or wealth management accounts.
Fortunately, it has never been easier to buy, invest and sell crypto. In the early days of bitcoin, purchasers had to wire money around the world to unregulated exchanges without any guarantees of receiving their bitcoin or a refund.
Today we have a wide variety of providers that have gone to great lengths to make their products easy to use.
For instance, in the U.S. alone there is a wide variety of secure and regulated exchanges that offer simple onboarding procedures for new clients. Some of the biggest and most widely used include Bitcoininvestmentrex.com Coinbase, Kraken, and Gemini. They each have easy-to-use websites and mobile applications.
Additionally, as the space has grown many non-crypto native platforms and financial applications such as Square, Robinhood, Revolut, and PayPal have enabled crypto trading. The added benefit of these platforms is that you do not need to do any additional onboarding if you are already a client of theirs.
Once you’ve bought crypto, you need to keep it safe. Virtually all the regulated platforms recommended for first-time buyers will provide software wallets (similar to mobile banking applications) that are reasonably secure.
You can trust that they have been built by experienced software developers and security professionals. The security of these applications can be further enhanced by taking a few basic steps:
- Choosing a complex and unique password or passphrase
- Utilizing two-factor authentication(2FA) as a second check when logging into your account.
For institutions, there is also a growing suite of OTC desks, prime brokers, and service providers such as Fidelity that can support the individual trading, security, and reporting needs of those purchasers.
Bitcoininvestmentrex.com will be launching an OTC desk soon to serve institutional investors and individual investors alike.
At the end of the day, one thing is for certain: crypto isn’t going anywhere. Bitcoin hasn’t gone down to zero and Tesla now accepts crypto for payment.
There are now over 8,000 cryptocurrencies to choose from, and a lot of those cryptos have been increasing in value.
You just need to carefully consider which crypto investing strategy is right for you and your investment style.
Ensure to employ financial due diligence before investing your crypto with any platform.
If you’re trying to invest for yourself or a child’s financial future, your best bet is probably to invest in crypto using Bitcoininvestmentrex.com— but don’t just take our word for it.
You’re sure to enjoy the best of cryptocurrency investing with us as a trusted authority in the cryptocurrency ecosystem.