It has been ten years since cryptocurrencies originally emerged, and these days, there are those who believe that their time has already passed. Skeptics have been calling Bitcoin and every altcoin that followed a bubble for years now, although they gained a lot more confidence since the market crash of early 2018.
However, while the crypto prices dropped by over 80% or more in some cases, there are still quite a few reasons to invest in the space, especially now, when it appears that institutions are developing an interest in it as well. However, in order to do it properly, would-be investors and traders need to be aware of various strategies that can increase their chances of making a profit.
While you can certainly just go to the exchange and start buying and selling without a plan in mind, this is something that will result in nothing but losses. Instead of just randomly buying and selling, investors and traders have come up with specific strategies, bound by certain sets of rules that are designed to increase your chances of seeing returns on your investment.
Of course, everyone uses a strategy that works best with their needs and personalities. Even so, they all have the same goal, which is to try and predict assets' behavior and using that knowledge to make a profit.
Bitcoin Investment And Crypto Trading Strategies
Fundamental Analysis Vs. Technical Analysis
The first distinction that we will make while trying to present different trading and investment strategies is between two investment styles, which are technical analysis and fundamental analysis.
When it comes to the fundamental analysis, it defines an intrinsic value of coins. This means that investors need to keep in mind various details regarding the coins they are interested in, such as their market cap, the details of the projects' white papers, as well as various news and how they might affect the coin, its price, and its behavior.
As for the technical analysis, this is a style that focuses on finding patterns in coins' behavior and making trading decisions in accordance with these patterns. The goal is to try and predict the coin's behavior and act upon it as early as possible. Technical analysis features three major types — moving averages, chart patterns, and volatility patterns.
Other Investment Strategies
Apart from the two investment styles, there are numerous other strategies, such as the dollar-cost averaging, or DCA. The DCA is an approach that focuses on regularly buying cryptocurrencies for a fixed amount of USD. For example, once a month, some investors would simply buy a $100 worth of their chosen currency, without paying much attention to what happens to it. If this seems like a lazy strategy, that's because it is. Investors are putting no effort into it apart from depositing funds on time. The point of this method is hoping that their chosen coin will eventually grow in value and that regular purchase of cheap coins will end up making them rich.
Then, there is the value-averaging strategy, which usually works pretty well for investors who tend to trade in highly-volatile coins. It is also simple in concept, and it all comes down to buying coins when their price goes down, only to sell them when it climbs back up. This method requires more dedication and attention than the DCA, however, as investors need to be aware of the coins' price and market trends at any given time in order to not miss an opportunity to buy or sell.
It is recommended that investors who choose this type of strategy carefully think it through, and diversify their investment portfolio. The sure way to lose your entire investment is to put all of your money on the single coin, which can then die or go down for some reason. In fact, having a well-balanced portfolio is so important when it comes to crypto trading and investing that many are considering it to be an investment strategy in itself.
Another strategy that focuses on the portfolio is called a capitalization-weighted portfolio. It is pretty much what the name suggests, and investors tend to create a portfolio that is market-value-weighted. In other words, this includes top 10, top 20, or more coins as per the mercurial market.
A more challenging method would be coin picking or an unbalanced investment portfolio. This is a riskier choice as traders and investors can never accurately predict what will happen to certain coins, and how is each going to perform. If they guess correctly, they can see massive gains, but if their guess ends up being bad, they can experience losses. Considering that the bearish market still has quite an influence on the coins' prices, it is probably a good idea to target only the reputable cryptos if using this method. Even so, there is still no way to be sure, which is why only professionals tend to use this method.
One of the popular approaches when it comes to coin picking is a method called small-cap investing. This is, obviously, the riskiest one, as the coins with a small market usually have the potential to go either way. However, in some cases, they can bring major profits to a skilled trader. Most investors usually shy away from these coins, while the risk takers tend to approach them when they are little more than a white paper. The advantage is clear — if you join the project early on, and it turns into a success, you can profit greatly. The alternative and a much more common result is that you will lose your entire investment, even if the project doesn't end up being a scam.
How Profitable Is It To HODL?
Pretty much everyone even remotely connected to the crypto world has heard about HODLing, which is a simple strategy in concept. The point is to buy coins and to keep them no matter what happens. The point of the strategy is to hold on to your coins for months, or even years, in hopes that they will become much more valuable at some point in the future. For example, those who bought Bitcoin before 2017 and held on to them could have decided to sold BTC when its price hit $20,000. Considering that they probably bought the coin when it was only a few hundred dollars per unit or less, they could have easily become rich if they took the opportunity.
That is the idea behind HODLing, and many still choose to apply this strategy today, with hopes that the crypto space will see another similar surge in the future. Whether it happens in a year, or five years, or even after another decade, HODLers tend to be patient people, and those who cannot wait will likely not benefit from this strategy that much.
A Passive Income
One method of obtaining cryptocurrencies without having to track the prices, or buy and sell at the right moment would be to run a master node and secure a passive income. The income depends on the incentive model that is implemented, as each project has its own specific amount of coins that are required in order to run a master node. In other words, investors need to buy a specific amount of a certain crypto, and then give it to the network as a guarantee that they are serious about the project, and that they have no malicious intentions. In case of Dash, for example, the ‘collateral' includes 1,000 DASH coins, or around $67,934.
While investors and traders cannot be awake and ready at all times, many tend to use trading bots which can. The trading AI became quite a trend in recent years, as investors can use them to constantly keep watch and follow the market trends, and all it takes is for them to do some basic configuring.
Bots can then react whenever the prices fulfill some of the criteria previously established by the investor. This is, once again, where one of the other trading strategies are employed. The positive thing here is that trading bots can do their job without emotions, following only the parameters set up by the trader. However, they can be quite expensive, and they cannot try to make predictions and assessments that may end up being more profitable.
Another method of getting coins without buying them is to mine them directly. Crypto mining has grown a lot since 2009, and while it is currently experiencing issues caused by the bear market, among other factors, it can still be a profitable choice under right conditions.
For example, mining Bitcoin right now is not particularly profitable. The process lasts for a long time, the rewards are low due to halvening, and the coin's price is barely stable at around $3,600. In addition, mining BTC requires expensive equipment, a lot of electricity and computing power, and it is also almost impossible to do it if you do not join one of the mining pools who tend to be the first ones to reach every new block.
It is much better to go for some other coin, although investors are advised to do thorough research before making such a move.
That is pretty much it when it comes to major investment and trading strategies. Investors and traders should remember to always do their research, never invest more than they can afford to lose, and never put all of their money into a single asset, as that is the easiest way to lose your entire investment. Apart from that, it is also advisable not to go for the uncertain, new coins, unless you are a professional, as well as not to overtrade.
Also, keep an eye out for scams and scammers, since a lot of them entered the crypto space in 2017, together with legitimate investors. However, the difference is that a lot of investors got burned and left, while the scammers started modifying their techniques and searching for better and sneakier ways to trick investors. A lot of the confusion, stress, and of course — money, can be saved if investors and traders remember to do their homework before rushing into a seemingly excellent investment opportunity, so keep that in mind next time you go trading.