9 Best Cryptocurrency Investment Strategies
Unlike other investment assets, cryptocurrencies don’t correlate or correspond to econometric data and other markets. It leaves the crypto market dependent on news and media hype about crypto and technical analysis that only some experts can master.
Even if you don’t have a degree in economics or come from a finance background, you can get one step ahead with these cryptocurrency investment strategies.
Why is a strategy important?
Bitcoin and other cryptocurrencies are assets driven by the speculative motives of the investors. While many try to include digital currencies into their portfolio investments, others lack an understanding of the risk involved.
Like other investment decisions, you must have a strong strategy or set of goals to consider when investing in Bitcoin or other digital coins and tokens. Because of how volatile and risky the crypto market is, you are more prone to losses if a strategy isn’t in place.
Know where to store your cryptocurrencies
Regarding other investments like equity shares, it’s known that your asset is “safe” within some entity. Similarly, no one will come and take away the property you invest in while it sits on the land. Unfortunately, this is not the case for cryptocurrency.
Before you begin to buy and sell cryptocurrency, you must decide where to store it. Digital assets like cryptocurrencies are stored in digital wallets.
You can keep your digital asset in an online digital wallet, which can be a trading platform like Currency.com, where your funds and coins are secured. Or, you can store cryptocurrency in an offline wallet, on an external hard drive, or storage device.
Though saving cryptocurrency in offline storage is better to keep it safe from potential hacking threats, saving in an online storage platform is far more convenient.
You can easily link your bank account with the platform and transfer funds in and out. Experts suggest keeping 80% of crypto-related funds in offline storage and the rest in online storage.
Understanding blockchain technology
Cryptocurrencies employ blockchain technology to encode and decode cryptographs. Before investing in cryptocurrency, spend some time understanding the backend of cryptocurrencies – how blockchain technology works.
Every digital currency or coin has a different blockchain network. You don’t have to understand that for each currency, but knowing the basic framework is necessary before investing.
Highly liquid assets
Cryptocurrencies are highly liquid assets. Liquidity refers to the ease of transferability of a currency. In the cryptocurrency ecosystem, liquidity implies the convenience of transferring one token for another or cash.
Though Bitcoin is currently the most liquid digital asset in the ecosystem, it is essential to understand the concept regardless.
High liquidity helps decide whether you should make a trade or not. Of course, you don’t want to spend too much time thinking about whether to go ahead with a trade or not since the crypto market moves rapidly. But that doesn’t imply you make hasty decisions.
Therefore, considering an asset’s liquidity, consider its trading volume to gauge whether you should invest.
Assess the volatility of crypto assets
As mentioned before, the crypto market is rapid, thus, highly volatile. Volatility refers to the sudden drops and hikes in its value and price. For short-term gains, volatility may seem like a plus point, but those seeking long-term investment goals find it difficult to capitalize on highly volatile assets.
Since the cryptocurrency system relies on the speculations and motives of the system’s beneficiaries, it is bound to have high volatility. Though sudden price hikes can be disadvantageous, minor volatility is known to occur daily.
Therefore, before jumping onto a trade, know its risks by assessing the volatility. To do so, be attentive to cryptocurrency news, blockchain trends, and updates.
Don’t invest more than you can afford
As you would do with other types of investment, don’t go over the board with cryptocurrency investments. Don’t promise to invest more than the losses you can bear. If you want to determine the extent of risk you can bear, consider your earnings, savings, current expenses, and risk profile. An expert suggests that beginners should not invest more than 5% of their income in cryptocurrencies, whereas intermediate investors can go up to 10%.
Regardless of your enthusiasm for investment or interest in cryptocurrencies, if you don’t know how to trade, there’s a sleek chance you would gain from a crypto investment.
Knowing the volatility of cryptocurrencies, ensure you include factors like trading cost and strategies like stop-loss and diversification when trading digital currencies.
Short-term vs. long-term gains
Keeping in mind the volatility of the crypto market, it can feel tempting to invest in a currency only for short-term gains. Don’t expect much from cryptocurrency investment if you focus solely on short-term gains.
Given the nature of the crypto world, it is better to aim for long-term investment rather than short-term. Many digital currencies offer high gains only when yielded for a long time.
That said, try not to hold on to a currency longer than needed. As contradicting as it may sound, experts in the crypto world suggest that you take short-term gains as well.
To assess whether you should take a short-term gain or a short-term fall is to devise an investment strategy. Based on the market’s state, currency’s trading volume, volatility, and risk assessment, you must create a strategy that blends both short-term and long-term gains.
Like any other form of investment, portfolio diversification helps minimize your potential for loss or risk. Effectively, you must invest in a couple of currencies simultaneously, rather than giving it all to one currency.
Moreover, diversification doesn’t have to be across various coins only. You can diversify across the spectrum of digital assets like non-fungible tokens (NFTs), decentralized finance (Defi) projects, or stablecoins.
The cryptocurrency market is all about analyzing various technical aspects like trading volume, volatility, liquidity of an asset, and much more. If you want to be successful at crypto trading, try to make judgments and decisions based on charts you see or your speculations of the market’s situation.
Investing in cryptocurrency is not difficult, but as a beginner, try taking up as much advice as possible. There are plenty of free resources on most trading platforms and from experts in the crypto arena.
Follow these experts to gauge their buying decisions and investment strategies. More importantly, have a sense of risk assessment based on your financial standing. You cannot risk investing more than you can afford to lose.
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