Cryptocurrency investment strategies
Cryptocurrency: Bitcoin and alternative cryptocurrencies – were among the top-performing asset groups in 2021, as more investors rushed into the crypto market, hoping to profit from digital assets that have the potential to rise in value over time. However, cryptocurrencies are inherently risky investments with volatile price movements. This is only one of many risk concerns that cryptocurrency investors must consider if they wish to benefit from investing in this burgeoning asset class, which currently has a total market value of more than $2 trillion. Investing in digital assets is similar to investing in conventional assets such as equities and bonds. Here are some basic investing ideas to keep in mind as you manage your cryptocurrency investments.
The following are the top seven cryptocurrency investing strategies:
- Select the appropriate storage combination.
- Make liquidity a priority.
- Volatility is beneficial.
- Invest just what you can afford to lose.
- Take use of your profits often.
- Average cost in dollars.
Select the appropriate storage combination
When it comes to storing your bitcoin, there are a few options. Digital assets are either kept in hot or cold storage. Hot storage refers to an online digital wallet, while cold storage refers to an offline wallet, which is often saved on a hard drive. To prevent hackers from obtaining access, experts recommend storing the bulk of your bitcoin in a cold wallet. It’s useful to keep some cryptocurrency in a hot wallet online so that crypto traders may swiftly enter and exit positions. According to Yubo Ruan, CEO and creator of Parallel Finance, new decentralized lending and staking protocol on Polkadot, a useful crypto storage method are to keep around 80% of long-term money in a cold wallet. The hot wallet may now be used for short-term transactions.
Make liquidity a priority
When selecting how to invest in the cryptocurrency market, liquidity is a crucial measure to consider. Because the market changes swiftly, crypto traders must be able to enter and exit positions quickly. This implies that there must be demand for bitcoin so that market players may acquire at the highest price and profit when they decide to sell some of their holdings. “You don’t want to acquire an asset that has amazing potential but isn’t being traded and is simply stagnating, so you’re sitting on it and at the mercy of the market,” says Tally Greenberg, director of business development at All nodes, a crypto hosting service. When determining liquidity, the recent trading volume of a crypto asset might be useful. The trading volume of a cryptocurrency reflects how much it has been purchased and traded, reflecting the general interest in the asset.
Take advantage of volatility
Because bitcoin is a new asset, there is still a lot of speculation and excitement around it, which might contribute to increased volatility. While big price changes are often seen as a danger, everyday volatility is natural and healthy for the cryptocurrency market, and it may be used to benefit. Greenberg argues why volatility is really beneficial to savvy traders. However, in order to properly control your volatility risk, you must first identify what sort of trader you are in order to handle the market’s price fluctuations. She emphasizes that it is essential to keep a careful eye on what is going on in the market and with the traded item itself. This entails keeping up with the news and any connected blockchain developments, as well as past charts, in order to spot developing trends.
Invest just what you can afford to lose
Cryptocurrencies are speculative investments with a significant risk of loss. Invest just what you can afford to lose in the cryptocurrency market, just as you would in regular investment. If you are unable to bear the possible total loss of your cryptocurrency investment, you cannot afford to take the risk of investing the amount you are contemplating. According to Ruan, determining risk tolerance in the crypto market boils down to how much you make and your degree of experience. A newcomer to crypto should devote less of their investable income to the asset class than a devoted crypto enthusiast or a Defi specialist.
Make use of your profits often
Experts advise crypto market investors to grab profits periodically. Gains should be kept in your hardware wallet as a best practice. When it comes time to take gains, crypto investors are often confronted with the dilemma that the price of a cryptocurrency might fall or rise. Profit-taking on a regular basis smooths out this risk over time. “A lot of folks simply purchase and hold for an infinite period of time, and they’re at the mercy of news, memes, and celebrity tweets,” Greenberg continues. To better define your profit-taking crypto trading strategy, it might be important to understand why you are joining a crypto trade, just as it is with any investment. This allows you to specify your entrance and departure locations.
In the world of cryptocurrency, putting all of your eggs in one basket is not a good approach. To reduce risk in crypto investment, diversify your crypto portfolio by investing in a number of currencies and crypto projects. There are several cryptocurrency and blockchain assets available on the market, including the “internet of things,” nonfungible tokens, Defi initiatives, and a broad range of coin kinds. Greenberg adds that you may diversify even more by using bitcoin exchanges since not all exchanges have the same assets. Crypto investors may minimize their overall risk profile by diversifying their investments across various digital assets.
The average cost in dollars
Dollar-cost averaging, or DCA, is an investment approach in which a certain amount of money is invested on a regular basis rather than all at once. This allows investors to weather market fluctuations in the same way that taking profits on a regular basis smoothes out price risk. Using a DCA strategy, you invest a fixed amount throughout bull and down markets. Buying when the crypto market down enables investors to purchase assets at a discount in order to resell them for a profit in the long term. Cryptocurrency is a new asset class that is generating a lot of buzzes. However, employing DCA may help to keep the hype in control. “DCA also eliminates emotion from your new market positions and helps you overlook the short term for longer positions by acquiring your crypto over time,” explains Ruan.