The recent US election results point towards more quantitative-easing measures in the forthcoming future. With the average consumer unaware of the long-term implications of such decisions, it’s easy to spot opportunities and protect your net worth. Among them, cryptocurrencies seem to be increasing in popularity.
Bitcoin and Ethereum are now becoming long-term investment options for many experienced investors. Altcoin trading is also trending when looking at liquidity graphs of popular exchanges.
If you are looking for the best strategies to expose yourself to cryptocurrency, you are in the right place. This article is meant to introduce the most popular crypto investment strategies among individuals and businesses, as well as help you build a strategy for your own portfolio.
- Why a crypto investment strategy is important
- Best crypto investment strategies
- How to improve your bitcoin trading strategy
- Wrapping up
- Frequently Asked Questions
Why a crypto investment strategy is important
For most new investors, the process is quite simple: Create a wallet, buy the coins, and just wait for them to grow in value. Right?
Well, this is one way, but certainly not the best option for everyone who enters the market. Some people want to earn massive profits in a short amount of time, while others want to protect themselves against inflation. As such, there are several crypto investment strategies; each ready to accommodate different needs.
Building an investment strategy is very important, as it allows you to set concrete goals and stick to them, without involving your emotions or third-party opinions. It is also a very individual process, as the strategy often matches one’s character and personality. An avid risk-taker will not follow the same strategy that a conservative market observer will.
Best crypto investment strategies
There is not an ideal bitcoin earning trick. There are also no set guidelines when it comes to investing. However, there is a lot of information we can learn from when looking at other financial markets and the history of the crypto industry.
Overall, there are three distinct strategies, each of which is meant to serve a particular segment of investors. Keep in mind that these strategies are explained in a generic manner, and you will need to adjust your strategy once you adopt the one that suits you best. Let’s look at them one by one.
1st strategy – Buy and HODL
The most common (and rewarding) crypto investment strategy to this date involves buying up Bitcoin in spot market prizes and storing them for a longer period of time until a certain price point is reached.
The term HODL became popular in 2013 when a BitcoinTalk user misspelled the word “hold”, causing his thread to go viral. In essence, you “HODL” onto your coins by storing them in your wallet for a long period of time.
While this strategy may seem easy from an objective standpoint, the reality is much different.
- Hodlers often go through emotional roller-coasters that are directly linked to the performance of the markets. When the price drops you are inclined to sell; when the price goes up you can’t let go.
- While every investor has a different level of involvement, most holders will check the market daily and follow the news closely. This can lead to more stress, which can affect all other aspects of your life.
Hodlers that have been through multiple market cycles are more “immune” to this volatility and have managed to build strong emotional intelligence. This is an important part of your eventual success.
Therefore, to better understand the concept of HODLing and maximize your profits, it is important to set (and stick to) targets. Ask yourself the following:
- How long am I able to hold onto this investment?
- Is this money I need or can I afford to stay away from it temporarily?
- What is the exact value I aim to achieve for my portfolio (a.k.a. What is my selling price)?
- Do I plan to sell my portfolio in parts (as the price increases), or all at once (once the price reaches a certain point).
2nd strategy – Dollar Cost Averaging (DCA)
Dollar-cost averaging (DCA) is an investment strategy that protects buyers from short-term fluctuations in cryptocurrency prices. The process is simple: investors purchase a certain amount of crypto on set time intervals to acquire coins at an average price point.
This strategy is great for those who:
- Prefer not to invest a large amount of money at a certain pricepoint – Instead, they buy up small amounts over repeating timeframes, e.g. weekly or monthly.
- Are willing to make less profit (on average) in order to hedge against market volatility – While the average profit margins are lower for DCA than they are for buying and HODLing, there is less risk and thus less emotional disturbance over time. This increases your potential for making a profit even in seemingly negative market conditions.
- Prefer to invest a small part of their monthly salary instead of their savings – This one is important as the average millennial does not have a respectable amount of savings to allocate towards these types of investments.
- Those who believe in a coin’s long-term potential but are uncertain about its short-term performance.
To start with Dollar Cost Averaging, you can:
- Read this DCA guide to help you set goals and get started.
- Check how much you would’ve earned with this strategy if you started investing earlier.
- Use BlockFi to set up automated recurring trades, automating the DCA process.
- Check the following video, as it compares DCA with other crypto investment strategies:
3rd strategy – Bitcoin trading strategies (Buy low, Sell high)
Cryptocurrency trading is rather complex and it would take a whole article to analyze all the different methods you can implement. Overall, however, trading is reserved for those that wish to maximize short-term profits by taking larger risks.
Let’s take a brief look at the most common crypto trading strategies:
1. Spot trading (& how to trade altcoins)
Spot trading means that you trade “on the spot”, buying or selling coins at market price. It is the most common and oldest method of crypto trading. With the introduction of several indicators, graphs, crypto pairs, and automated buy/sell orders, the process has become less of a gamble and more of an educated guess. To learn more about spot trading, make sure you watch the following video:
2. Leverage trading (or crypto margin trading)
Leverage trading is the riskiest of all options, and probably one that is best to avoid. When trading with leverage, you borrow a number of coins from the exchange you are trading with, in order to open a larger position. By doing so, you can potentially make more profit from smaller price movements.
Naturally, this process can be very rewarding. Some trades can have up to x125 leverage, making many people curious to try. However, most end up with losses, since the markets are very volatile.
If you wish to learn more about leverage trading, we recommend reading this article.
3. Futures trading
Futures trading is an agreement between two parties, fueled through smart contracts, to buy or sell a specific cryptocurrency at a certain price point on a future date. Crypto futures belong to the category of derivates products, which are widely used in other financial markets, and slowly making their way into the world of crypto. To learn more about this type of trading, check the video below:
4. Options trading
Options trading is a newer concept in the crypto world. In essence, “options” are contracts that give an investor the ability to purchase or sell an amount of BTC at a predetermined price during or before the point of maturity (contract expiration).
With Bitcoin options, you make predictions based on the volatility of BTC without ever having to buy the actual coins. This makes it easier to enter the market and profit from the volatile price swings. Due to these fluctuations in the price of BTC, options trading has been steadily growing in demand and is expected to become even more popular in the future.
If you wish to explore Bitcoin options and see how the process works, make sure you make a demo account on BITLEVEX and start trading with zero risks. Then, once you feel ready, proceed to the actual options trading, benefiting from our user-friendly platform and continuous support.
5. Arbitrage trading
The final trading strategy on this list is arbitrage trading. When using this method, you try to find arbitrage opportunities between different exchange platforms and use them to your benefit. Here is how the project works in a nutshell:
- Users store funds on multiple (usually smaller-sized) trading platforms.
- They will then set up alerts through social media channels or bots to receive a notification when there is a price difference between the two platforms.
- At some point, you will notice a price difference in a cryptocurrency you are interested in. For example, Bitcoin may be trading at $10.000 on exchange A, and at $10.100 on exchange B.
- To save on time and fees, the user will sell his funds on exchange A and buy an equal amount of funds from exchange B. By doing so, the investor profits from the transaction.
How to improve your bitcoin trading strategy
- Build up your emotional intelligence through continuous practice and market observation.
- Set realistic goals and stick to them, no matter what direction the market decides to take.
- Learn how to research cryptocurrency and don’t limit yourself to technical analysis.
- Enter each trade with no more than 5% of your total trading portfolio, unless you are trading with leverage. You can scale up the % number as you become more experienced.
- Keep educating yourself on a continuous basis. This can be achieved by following many relevant publications, like CryptoCred’s Medium channel, successful traders like CoinMamba and SalsaTekila, as well as Youtube channels like Alessio Rastani and Rekt Capital.
As we enter 2021, the market will most likely continue its upward trajectory, offering many opportunities to profit along the way. The crypto investment strategies we explored in this post should help you better structure your investment journey in order to maximize these opportunities. To summarize, here are the things you need to remember:
- Buying and HODLing crypto is a great strategy for patient investors who are willing to invest money they may not directly need in the future. It has a high money-making potential when looking at historic tendencies but some with significant emotional attachment. To maximize your potential returns, it is important to set realistic targets and stick to them.
- Dollar Cost Averaging (DCA) is best for people who may not have a large amount to invest upfront, and would rather buy with smaller amounts over repeating timeframes. Generally speaking, it offers lower returns, but these are more certain than the “buying and HODLing” strategy. DCA can be done manually or in an automated manner.
- Crypto trading (Swing trading) is best for investors who are more focused on short-term performance. This high-risk, high-reward strategy comprises of several different types of trading, each of which has its own advantages and disadvantages. Before you decide to trade crypto, it is important to learn how to control your emotions and educate yourself.
Finally, make sure you perform your own research and gain as much information as you possibly can, before making any investment decisions. If you enjoyed reading about the best crypto investment strategies, make sure you also check our favorite ways to earn passive income with cryptocurrency.
Frequently Asked Questions
If you want to further sharpen your crypto skills by developing foolproof strategies, make sure you check the Q&A section below.
What are some good crypto portfolio strategies for altcoins?
As the altcoin markets start to warm up for another bullish season (a.k.a. altseason), we decided to touch upon some of the best cryptocurrency investing strategies in this area. To start, make sure that you only allocate a small part of your total portfolio to altcoins, as they are (1) very risky and (2) could end up forming a much larger % of your portfolio if they end up going up in value.
To start allocate 5-10% of your portfolio across 10 coins in which you have a strong conviction. These should combine strong fundamentals that solve pressing problems in the industry, paired with a growing community and a positive market sentiment.
Acknowledge and prepare that most of these coins will not go in the direction you are hoping. But one of them will most likely surpass your expectations and grow in value massively compared to other investment opportunities.
Hence, at this point, you will need to set your targets. If you buy them with BTC, set a BTC target at which you want to sell them (amount of sets per coin). If you buy them with ETH repeat the process. Try not to measure their progress in terms of USD, as the whole market is currently growing. Then, once your goal is met, sell your coins in batches, starting with taking out your initial investment.
What is the best crypto investment strategy for beginners?
In our option, the best you can do is allocate around 65-70% of your funds to BTC, 15-20% in ETH, and the remaining funds in altcoins with strong fundamentals. These include exchange tokens, like BNB, WRX, FTT, etc., base layer projects, like MINA, and Layer 2 solutions for Bitcoin and Ethereum (e.g. MATIC for ETH). The latest batch of altcoins should be retained for a long period of time, and it is best to ride these coins “to the moon” or to the ground!
How are institutions forming their Bitcoin investment strategies?
Most institutions that are involved with cryptocurrencies choose to purchase a certain number of Bitcoin with cash that they hold in their reserves, and store it for the long-term – in other words, they choose to HODL. That said some companies, which are more idealistic than others, choose to go further than that. Microstrategy has not only repeatedly purchased BTC with its cash reserves but has also taken out massive loans to buy up even more. But that’s not the only example – the crypto investing strategy of Tesla is also very interesting. The EV company is now offering buyers the opportunity to pay for cars using Bitcoin, all of which is stored in the cold wallets of the company for long-term HODLing. This way, they acquire more Bitcoin as their cars are getting sold over time.