Best Cryptocurrency Investing Strategy- The Ultimate Tips for Beginners
Cryptocurrencies have shown a proportionately low correlation to economic fundamental data and other markets, leaving technical analysis and crypto-specific news as the main drivers for analyzing them.
An ideal investment strategy is one where you maximize your gains and minimize losses while managing risks
Though it may be frightening, it’s an axiom fact in investing: To earn more return, you must take more risk.
When aiming to make money in the short term, you must be prepared to lose your investment (and maybe even more!) in that time frame as well, especially in a volatile market like cryptocurrencies.
As we know, the investment landscape is a rich, dynamic and ever-changing ecosystem.
We all have heard about or seen people investing in properties, stocks, bonds, and the crypto market.
While the latter has seen exponential growth in the last year, it also has its share of risks. Consequently, for the average investor, going into crypto can be very challenging and sometimes overwhelming.
Most cryptocurrency beginners face a range of questions: How can they get started on their investment journey? What are the risks of investing in crypto?
What is the right investing approach for the crypto market? Fortunately, these questions can all be answered by having a clear investment strategy from the outset.
Cryptocurrency investing strategies vary from investor to investor depending on their personal risk appetite, financial goals, and amount.
What is a Cryptocurrency investing strategy?
A cryptocurrency investment strategy is a set of instructions designed to help an investor make investment decisions, including what to invest in, when to invest, and how much to invest in cryptocurrency in order to yield crypto profit.
There are many investing strategies to choose from, ranging from conservative strategies that focus on low-risk portfolio management, with the objective of wealth protection, to aggressive strategies, which focus on high-risk portfolio management with the goal of capital appreciation.
While all investing strategies have both benefits and risks, the right one for you will depend on a variety of factors, including your age, goals, expectations, available capital, or lifestyle.
Why is it important to have a cryptocurrency investment strategy?
Cryptocurrency investing strategies work like a manual or a guide. They force investors to define their goals and risk tolerance, as well as commit to a plan for building their wealth.
- Firstly, a cryptocurrency investment strategy dictates all the decisions an investor might make regarding their investments — when to buy, what to buy, how much to buy, how long to hold, and when to sell. The benefits of having a strategy include:
- Helping investors make investment decisions — rather than getting caught up in the latest trend or FOMO, an investor simply follows the plan they have established.
- Encouraging clearer and more independent thinking — a strategy forces investors to think about investment decisions and goals in advance, which means they are less vulnerable to psychological biases.
- Reducing the risk linked to investments — having a strategy ensures any risks made are calculated, and the maximum acceptable risk is defined before making an investment.
- Defining realistic goals — investing strategies are designed to increase and/or secure the investors’ wealth, and defining them upfront creates a clearer idea of future capital needs/allocation required to achieve those goals.
In addition, cryptocurrency investing strategies help investors reach their goals.
Not having a cryptocurrency investment strategy also has consequences. Risk is an inherent part of investing, no matter the means used or the market an investor chooses. With the crypto market being known for its volatility, going in without having a strategy will increase the chances of an investor making bad decisions — influenced by greed or fear. This will irremediably lead him to much riskier scenarios and increase his probability of loss.
Now that we’ve covered why investing strategies are important in crypto, let’s look at some examples of common investing strategies.
Cryptocurrency Investment Strategy for Beginners
The following strategies can be adopted by everyone interested in investing in cryptocurrency.
1) Don’t invest in cryptocurrency because of the hype in Media and Public
While cryptocurrency may dominate most business and finance conversations, investing in it just for the sake of hype is not the best strategy. Evaluate your own financial assets and do thorough research work before taking the plunge. Cryptocurrency is an unregulated market, which makes it riskier to invest in if done without a set goal and plan of action.
2) Hodling (or buy and hold)
HODL — which is both known as a misspelling of the word ‘hold’ as well as an abbreviation for ‘hold on for dear life — is a long-term strategy that has proven to be one of the easiest and more effective approaches out there.
The strategy is simple, you buy your tokens, you hold them and you wait. Holding is common for those who invested early in different projects and it is a strategy that makes a lot of sense in the Bitcoininvestmentrex ecosystem.
There are many cases of Bitcoin hodlers who bought Bitcoin tokens at a price much lower than its current value. Consider the 10 richest Bitcoin addresses below:
All these addresses display massive amounts of BTC, with some hodlers who have never sold any BTC. This is the case of the 7th largest BTC address, highlighted in green — the holder (or holders) first invested more than 10 years ago and never sold any BTC. The holder or holders of this address bought the 79,957 BTC for around $73.5k in March 2011 when the BTC price value was around $0.92 for 1 BTC. At the time of writing, this 79,957 BTC is now worth around $2.7 billion (around 36,735 times the original value), peaking on 13th April 2021 at $5.09 billion (around 69,252 times the original value).
Like the example above, if you don’t plan on selling any of your assets for years, then congratulations — you are a hodler!
3) Building wealth requires patience
The key to building significant wealth is patience. The cryptocurrency markets are favorable for long-term investors as opposed to short-term investors.
This is due to the fact that most short-term investors rely on past performances and trade values of a particular currency to indicate its future performance. While this may prove to be an effective strategy for some, it may not always work.
As mentioned earlier, the cryptocurrency market is highly volatile and unregulated. The swings and drops of cryptocurrency can be dictated by influential people or corporate companies. Due to this, it is always best to make investments and forget about them as they can be more profitable once they hit a level of maturity.
4) Earning a yield or Crypto Profit
The purpose of this crypto investing strategy is similar to hodling, which is to bring the token holder a financial return over the long term. The difference is that buying and holding involve buying an asset at one price with the expectation that it will increase in value, then selling it at a higher price. Earning a yield involves holding your assets, but earning passive income while you hold — like how a savings account pays interest on your balance.
In crypto, one example of this strategy is Bitcoininvestmentrex’s Smart Bitcoin Investment plans. You can earn a yield on your BTC, ETH, BCH. There are different yields or ROI offered on each Bitcoin investment Plan, and you have the ability to double your yield with a Bitrex Alpha Plan. You can lock your tokens as long as you want and withdraw them every maturity period.
5) Dollar-cost averaging
Dollar-cost averaging is when an investor allocates an amount of capital to an investment periodically (e.g. investing $800 per month). The benefits of this approach are that investors don’t need to worry about short-term volatility, as they will be adding to their portfolio regardless of whether the market is up or down. The focus is long-term returns, as assets with strong fundamentals tend to increase in value over the long term.
Get access to the best dollar-cost averaging platform by simply investing on the Bitrex platform, you can allocate an amount of capital as little as $50 periodically.
6) Maintain a balanced portfolio
There are several different types of cryptocurrencies like Bitcoin, Ethereum, Dogecoin, Litecoin, etc. While for beginners it is best to invest in just one type of cryptocurrency initially and assess your gains and losses before expanding your investment portfolio, the most important strategy to maintain throughout is investing minimum funds in each cryptocurrency. Increase the amount you invest as your risk appetite increases
7) Growth investing
Compared to value investors, growth investors do not care about the market price or the intrinsic value of an asset. These investors are interested in projects or tokens that display above-average growth signs. This strategy is generally more short-term than the others.
There are many examples we can use to highlight this strategy, but let’s take Bitcoin again. As we all know, Bitcoin had spectacular growth between the end of 2020 and April 2021. Back in January, Tesla bought $1.5 billion worth of Bitcoin and then cashed out $272 million in the first quarter of 2021, making $101 million in profits for the company. Bitcoin in this phase was showing strong performance and was a great alternative investment for Tesla to make rather quick profits. In other words, they used growth investing.
The Ulitmate Guide for Cryptocurrency Investing Strategy
There are a number of elements to consider, including your investment goal, your risk profile, and your preference for passive vs. active investing.
However, despite all this cryptocurrency is still a highly volatile asset class that is also decentralized. So, it is important for all investors to keep the following points in mind before investing.
1) Research rigorously
As is the case in all money-related matters, it is important to do an adequate amount of research before you invest. Read all about the different types of cryptocurrencies before picking the one you choose to invest in. Read all there is to know on blockchain technology to understand how the cryptocurrency market functions.
2) Verify all information
As the crypto market is decentralized and unregulated, there are several scammers and fraudsters aboard. Do not blindly fall for investment schemes that promise great returns. Always verify before trusting.
3) Invest only the amount you can afford to loose
As the saying goes, “never put all your eggs in one basket”. It applies to investments as well. As the cryptocurrency market is extremely volatile, it is always smart to start small. And pick only one type of cryptocurrency and stick to it until you feel confident enough to understand the market. Invest small amounts of money.
4) Rely on your own research
The cryptocurrency market is new for everyone. So, do not fall for the investment strategies of so-called market experts or social media influencers. Rely on your own research and chalk out your own strategy based on your personal finances.
5) Patience is key
The volatility of the cryptocurrency market knows no bounds. So, it is important to remain patient despite all the swings that occur. Keep your cool always as it will help to make good decisions.
6) Create a new email ID
All cryptocurrency trades take place via various platforms that require you to create an account using an email ID. It is always best to create a separate one only for cryptocurrency trades and investments. This is to avoid any risk of a data breach.
7) Understand cryptocurrency wallets
Cryptocurrency can be stored in an online wallet as well as an offline wallet. For new investors, an online wallet is best. However, it runs the risk of being hacked. Read up on both wallets and choose one that best suits you.
8) Do not store all your money in a mobile wallet
While having mobile wallets is extremely convenient, they also carry the risk of being hacked and stolen. Hence, it is always best to not have all your cryptocurrency stored in a mobile wallet.
9) Read all about tax on cryptocurrency
As cryptocurrency is unregulated in many countries, trading in it could draw heavy taxation. Read all the information relating to taxes on crypto investments in your country before you begin investing.
10) Do not blindly follow the crypto bandwagon
Yes, cryptocurrency is very popular and has several people diving right into investing and trading in it. But that does not mean you should too. Do not blindly jump on to the cryptocurrency bandwagon. Assess and take stock of your own personal finances before making a move.
11) Choose your involvement level
Now that we have covered the main investor profiles, let’s consider different investing strategies that might be appropriate for them. The first area to consider, though, is whether a strategy is active or passive.
Passive investing is an investment strategy that focuses on a long-term investment perspective, with very little use of buying and selling (trading) activities. This strategy requires a buy-and-hold mentality, as it can often be tough to resist market opportunities or volatility phases. Passive investing is generally less complicated, less expensive, and often leads to higher results than active investing. Great examples of this strategy are hodling, earning a yield, or dollar-cost averaging.
Active investing takes the opposite approach and requires high involvement from an investor. In practical terms, investors will buy and sell assets on a regular basis to maximize profits. Trading is the most famous active investing strategy that there is. To a lesser degree, another active investing strategy would be long/short investing.
These two approaches are found among many different crypto platforms. Bitcoininvestmentrex, which is our reference crypto ecosystem, delivers a wealth management experience and therefore promotes the passive, long-term investing approach, especially with products like its Smart Bitcoin investment plans and Smart Bitcoin Savings account. TradeStation and Kraken are examples of platforms more suited for active trading, as they offer a great variety of tools suited for that type of investing. Importantly, while some investors might naturally lean towards passive or active investing, there’s no need to commit to just one approach. Many investors incorporate both styles in their wealth management strategies.
12) Measure your progress
Once you have started following an investment plan, one important thing to do is to set regular checks to determine if your investments are going the way you want them to.
Depending on what kind of investor you are, the goals you have set, and the strategic plan you have built, it will be important to remind yourself to check the performance of your investments on a weekly, monthly, quarterly, or yearly basis.
Indeed, investment performance measurement will help you assess the success of your investments. If you are getting the results you wanted, then great! However, if you see that your strategy is not achieving the results you want, you will be able to change your strategy or reallocate your assets to achieve your goals, or even consider modifying your initial objectives
Which is the Best Cryptocurrency Investment Strategy for You
The best cryptocurrency investment strategy is an investment strategy that reduces risk, increases capital appreciation, and profit preservation.
From what we have covered in this article, you will surely guess by now that there is no single right cryptocurrency investment strategy for everyone.
The right strategy varies from person to person. The only thing that we all have in common and that regroups us as investors in the hope of growing our wealth over time to pursue different life objectives. The manner of how this is done is up to you, and you only.
We could say that the best strategy, or strategies, for you would be the ones that suit your unique risk tolerance, experience, knowledge, preferences, and goals. Don’t hesitate to test and review some of the investing strategies we covered to see if they are a good fit for you. In that process, you might even find that a combination of strategies achieves better results in a more diversified investment plan to achieve your goals.
The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing provided shall constitute financial, tax, legal, or accounting advice or individually tailored investment advice. This information is for educational purposes only.