I’ll be honest with you: I don’t know about Bitcoin or cryptocurrency. But I do have a lot of friends talking about it and making me feel like I’m missing out on something. So, after some digging, I found a few videos that cover the best strategies for investing in cryptocurrency.
What Is Cryptocurrency?
According to Investopedia, “A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.”
- Cryptocurrency is digital money that is secured by blockchain technology.
- There are different ways to invest in cryptocurrency, like buying it directly, or putting money in crypto related funds and companies.
- You can buy cryptocurrency on crypto exchanges website or through some stockbrokers.
- Be careful about extra costs when buying crypto. These costs can be different for each type of currencies.
- Investing in cryptocurrency can be risky. Only use what you’re okay with possibly losing.
*Cryptocurrency has gotten a bad rep because it can be used for illegal money laundering or tax evasion.
You can convert cryptocurrency into cash (you know, so you can buy stuff) but it’s not like you can go to an ATM machine or bank to do it. Companies like Bitcoin have a way to do it on their app/website. You can also sell it on a cryptocurrency exchange, such as Binance, Coinbase or Kraken. According to Banks.com, “This is the easiest method if you want to sell bitcoin and withdraw the resulting cash directly to a bank account.”
Types of cryptocurrencies
Blockchain technology has really grown big. Now there are more than 26,000 types. This is what CoinMarketCap.com said in November 2023 Bitcoin was the first cryptocurrency, which is why you hear that name tossed around like a generic term. It’s like the Xerox for copiers. All the other types of cryptocurrencies are called altcoin. This means they are different from Bitcoin.
Many of these altcoins have become well-known. They are worth a lot of money now and many people use them and invest in them.
It’s hard to tell which coins will do the best since the world of crypto ecosystem is still pretty new and many cryptocurrencies haven’t been around for long. Even the biggest ones come with risks. You could really lose your investment. After doing great in 2021, most cryptocurrencies saw their values drop a lot in 2022. Last few month of 2023 market showing bearish trend. It’s super important to know all about each crypto before you put your money in it. Make sure it’s a good fit for you.
What to consider before investing in cryptocurrency
In the last few years, many retail and institutional investors are starting to see the value in having cryptocurrencies in their mix of investments. We’re talking about hedge funds, banks, mutual funds, and regular people like you and me. They’re all jumping on the crypto bandwagon because of its current worth and the potential it has for the future. You shouldn’t miss out on this!
If you’re wondering how to start and where to put your money in cryptocurrencies, this article is for you. We’re going to dive into different strategies for investing in cryptocurrency and talk about what’s good and not so good about them to help you get going.
Let’s dive in! Your crypto investing strategy will depend on what you like, what you’re aiming for with your investments and how much risk you can handle. We’re going to look at some of the most popular and effective strategies for investing in crypto.
10 Best Crypto Investment Strategies
- Buy and hold
- Dollar-cost averaging (DCA)
- Early-bird investing
- Copy trading
- Following trading hype and narratives
- Buying micro-cap altcoins
- Participating in airdrops
- Technical analysis trading
- Arbitrage trading
- High-frequency trading
Let’s take a deeper dive into the top strategies for investing in crypto:
Buy and Hold Strategy
This strategy is pretty simple: buy when the price is low and sell when it’s high. It’s also known as position trading. It’s a great way to make money without doing much. You buy cryptocurrency and keep it for a long time. You don’t worry about the prices changing every day or week.
Think about it like this. If you had put $100 in Bitcoin back in 2012 and just left it there, today you might have around $50 million! Sure, Bitcoin’s price went up and down a lot, but if you’re holding onto it for a long time, those ups and downs don’t really matter.
This way of investing is good for people who really believe in the crypto they’re buying and can wait a few years to see any money from it. They buy and hold onto it, hoping the price will go up a lot in the future.
- This strategy helps you not worry about the ups and downs in the market.
- You can put off paying taxes on the money you make for a while.
- You’re less likely to make a bad decision at the wrong time.
- You can still lose money.
- One bad choice can mess up your whole investment.
- You might miss out on making more money if you were buying and selling more often.
Dollar-Cost Averaging (DCA)
Dollar-cost averaging is a well-liked investment method used in all sorts of areas, not just crypto. What you do is put in a set amount of money regularly, no matter what the price of the crypto is at the time.
The idea is to make the most of the crypto’s price going up and down. By doing this, you end up with a good average price when the crypto’s price really takes off. Let’s say you bought a certain amount of Bitcoin every month when its price was anywhere from $1 to $1000. You’d have made a pretty penny when its price shot up to $60,000!
There’s an even better version of DCA called value investing. This is where you start putting money into a crypto you think is priced lower than it should be.
- You don’t have to worry about short-term price changes.
- It’s simple to do, whether you’re new to crypto or have been at it for a while.
- You can set up DCA to happen automatically.
Cons: This way of investing might not give you much back unless there’s a really big rise in the market.
Early-Bird Investing: Initial Coin Offerings (ICOs)
Think of ICOs as the front-row seats to a crypto project’s debut, akin to a startup’s first stock offering. It’s an early investment opportunity with the potential for high rewards. However, due to their unregulated nature, they’re also risky. To make a wise decision:
- Purpose Clarity: Is the ICO necessary? Understand how the funds will be used and how they will help the project.
- Team Research: Who’s behind the project? Check their experience in crypto, their past projects, and their success rate.
- Legal Check: Verify the project’s legal documents. This step is crucial for ensuring the ICO’s legitimacy.
Pros: Early investment often means lower prices, presenting a unique chance for high returns.
Cons: The risk of failure is high. if the project doesn’t succeed, your investment might become valueless.
Copy trading is a hands-off approach, perfect for newcomers or those with limited time. You replicate the trades of seasoned traders through a social trading platform. This way, you’re leveraging their expertise while learning the ropes of crypto trading.
Pros: It’s a straightforward way to access the crypto market, and you get to learn from seasoned traders. If they perform well, so do your investments.
Cons: There’s a risk involved. If the trader you’re copying makes a loss, it affects you too. Additionally, platform fees might eat into your profits. Remember past performance doesn’t always indicate future results.
Following Trading Hype and Narratives
Investing based on hype involves buying crypto when it’s not in the spotlight and selling during peak interest. This strategy capitalizes on how stories and buzz can drive market prices.
Pros:There’s a significant potential for short-term gains, especially if you can predict trends effectively.
Cons: It’s a high-risk approach. Hype is unpredictable and markets can be manipulated. This method requires constant attention to news and social media, making it challenging for those new to trading.
Buying Micro-Cap Altcoins
Micro-cap altcoins are like hidden treasures in the vast crypto universe. These are small, lesser-known cryptocurrencies with a market cap typically below $50 million. They’re not the focus of mainstream investors, but they hold potential for substantial gains.
Pros: Investing in these underdogs can be a smart move. They offer a chance for significant returns, especially if they gain popularity. Plus they add diversity to your portfolio, which is always a good strategy in the unpredictable world of crypto.
Cons: However, the risks are equally high. These altcoins can be extremely volatile and some may be part of ‘pump and dump’ schemes. Also many of them come from projects with unclear goals or inexperienced teams, so thorough research is vital.
Participating in Airdrops
Airdrops are like unexpected gifts in the crypto world. Projects distribute free tokens to users for simple tasks like following them on social media. It’s a marketing strategy to build a community around a new crypto project.
Pros: The biggest advantage? It’s free. You get crypto without spending a penny, which might turn into a significant sum if the project takes off. It’s also a great way to get involved with new projects.
Cons: But beware, not all that glitters is gold. Many airdrops turn out to be scams.If everyone’s just in it for the freebies, it might not bode well for the project’s long-term success. So always do your homework before participating.
Technical Analysis Trading
Technical analysis is like reading the secret language of crypto market charts. It’s about using historical price data to forecast future trends. This strategy is popular among traders who rely on patterns and statistical analyses to make their moves.
Pros: It’s a data-driven approach, which means it’s less about guesswork and more about informed decisions. If you get good at reading the charts. You could make profitable trades based on recurring trends.
Cons: But remember, the crypto market is notoriously unpredictable. Even the most reliable chart patterns can fail and external factors like global events or regulatory changes can turn the market on its head.
Arbitrage is about playing the price differences of a cryptocurrency on various exchanges. You buy low on one exchange and sell high on another, pocketing the difference.
Pros: It’s considered a low-risk strategy since you’re not betting on market trends but rather exploiting existing price discrepancies.
Cons: It’s not as easy as it sounds. It requires a deep understanding of the market and swift actions. Transaction fees can also reduce profits and this strategy might not be suitable for beginners.
High-Frequency Trading (HFT)
HFT is like being a speed racer in the crypto market. Using sophisticated algorithms, traders execute a large number of orders at incredibly high speeds. It’s all about capitalizing on minute price movements.
Pros: This method can be very profitable due to its ability to make a large number of trades quickly.
Cons: But it’s The crypto market’s volatility can lead to significant losses, especially in unexpected market conditions. Also HFT can contribute to market instability and is generally suited for very experienced traders with access to advanced technology.
By covering each of these strategies in detail, we can understand the diverse ways to navigate the crypto investment landscape, each with its unique risks and rewards.
How much should you invest in cryptocurrency?
Investing in cryptocurrency can be a bit like riding a roller coaster, full of ups and downs. It’s wise to be careful. Many experts suggest putting only a small part of your wealth into crypto, maybe just 1% to 5%. This is because it’s really important to only invest what you can afford to lose. Crypto can make your portfolio more varied and possibly improve how well it does, but it’s best to think carefully about how much you put in based on what you already have invested and how much risk you’re okay with.
When you dive into the world of crypto, picking the right coins is key. Some have a better chance of doing well in the long run and are less likely to see big price changes due to market tricks. The world of crypto is often unpredictable and can change a lot in value. The bigger, well-known cryptos might be a bit safer than the smaller, less known ones. But remember, even the big names in crypto can see their prices jump up and down a lot. At Stash, our advice is to keep each crypto investment to no more than 2% of your whole investment collection. This helps reduce the risk that comes with crypto.
How to invest in cryptocurrency in 2024?
Looking to invest in cryptocurrency? It’s essential to know where to buy and store it. Crypto investing is becoming more accessible every day with a number of exchanges, similar to those used for traditional investments, available. You can set up an account in minutes. But, just like investing in any asset, doing your research on a particular currency prior to investing may be wise. If you’re wondering how to invest in cryptocurrency for the first time, the following five steps can get you started:
Step 1: Picking the Right Cryptocurrency
Step 2: Choosing Where to Buy
Step 3: Storing Your Cryptocurrency
Step 4: Deciding How Much to Invest
Step 5: Managing Your Investments
Let’s break this down into super simple steps. It’s all about making smart choices when you dive into the world of cryptocurrency.
Step 1: Picking the Right Cryptocurrency
Let’s say you’re evaluating cryptocurrencies like Bitcoin and Ethereum. Bitcoin is known for its established market presence and is widely recognized, while Ethereum is celebrated for its technological innovation, including smart contracts. You would consider factors like market cap, trading volume, and historical performance to decide which one aligns with your investment goals.
Step 2: Choosing Where to Buy:
Cryptocurrencies are special Digital money. To buy them go to a special shop called an exchange. Big names are Binance, Coinbase, Gemini, and Kraken. Think what matters to you. Like how safe it is, how much it costs to use, how many people are using it, how little you can invest, and what types of cryptocurrency they have.
Look at each one carefully. Avoid scams. These are like ads that promise big things but are fake. Big names can have problems too. Remember the FTX story from 2022.
Step 3: Storing Your Cryptocurrency
After buying your cryptocurrency, you decide to store it. If you choose a hot wallet, it’s like keeping your crypto easily accessible online, similar to an online banking app. Alternatively, a cold wallet would be like a secure USB drive where you store your crypto offline for added security.
Step 4: Deciding How Much to Invest
Think about how much you want to put into crypto. It depends on your budget, how much risk you’re okay with and your plan. Look at the minimum amount needed and the costs. You can invest in expensive cryptocurrencies without buying a whole coin. Think about the total money you want to invest. Don’t put in more than you can afford to lose. It’s smart to not put more than 2% of your total money in one cryptocurrency. This decision would be based on your risk tolerance and financial goals
Step 5: Managing Your Investments
Cryptocurrency is a unique investment. You can use it to buy things or keep it as an investment. How you handle it depends on your plan and goals. Regular investing, spreading your investments and thinking long term are good ideas.
Wrapping it up
Crypto investing is like a big adventure. It’s exciting but can be risky too. You need to think and plan before you start. There are different ways to do it. You can buy crypto and keep it for a long time. Or you can buy and sell fast, that’s called day trading. Some people borrow money to invest more, but that’s more risky. Another way is to spread your money across different cryptos. This can help keep your risk lower.
There’s no one perfect way to invest in crypto. What works for one person might not work for another. The crypto world changes a lot, so it’s important to keep learning about it. The more you know, the better choices you can make. Remember to be careful and think about what you’re doing. Crypto can be a chance to make money, but you need to be smart about it.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
Remember Invest wisely and at your own risk some of these are very unstable
Cryptocurrency investing FAQs
How much money to start?
You can start with just a few dollars. Most crypto exchanges let you begin with as little as $5 or $10. Some apps even let you start with less. But be careful about fees. Some places charge a lot if you’re trading small amounts.
How does blockchain work?
Think of blockchain like a big digital ledger. It records every transaction, like a long list of who paid who. It’s run by many computers all over the world. They all check each other’s work to make sure everything is right.
What is Mining cryptocurrency?
Mining is like solving complex math problems to keep the cryptocurrency network running. Miners get rewarded with cryptocurrency for doing this. It takes powerful computers and a lot of electricity.
How to investing in Bitcoin?
You can buy Bitcoin on crypto exchanges like Coinbase or Binance. Some regular brokers like Interactive Brokers also offer Bitcoin. Even some apps like PayPal and Cash App let you buy Bitcoin. Watch out for fees and other costs.
What are altcoins?
Altcoins are all the cryptocurrencies that aren’t Bitcoin. They used to be seen as just alternatives to Bitcoin. Now there are thousands of them, like Ethereum and Solana. Each one is different.