In order to continue to win in cryptocurrency, you must stay on top of your game.
Cryptocurrencies represent the first new class of assets in recent decades, so it’s not easy to come up with the right investment strategy. In this article, U.Today sheds light on the main features of investments in cryptocurrency and the most popular long-term and short-term strategies that can be useful for those who are just starting or trying to survive in a bear market.
Why you should consider investing in cryptocurrency?
Despite the fact that top cryptocurrencies lost more than 90 percent of their value in 2019, there are still many reasons to invest in the market. For example, if we are talking about bitcoins, if you buy 0.28 BTC at this moment, you can be absolutely sure that no more than 1 percent will have more BTC than you. Therefore, you can easily become 1 percent in the hypothetical world of bitcoins.
Investment 101
For a start, it is worth mentioning that each investment strategy involves a set of rules that should make the most of your investment portfolio. Different investors have different styles and approaches, but in general they are all trying to achieve the same thing: to predict the behavior of a certain asset in the near future based on existing market data.
Depending on the type of data, we can distinguish two main investment styles - fundamental analysis and technical analysis. Fundamental analysis determines the intrinsic value of a certain coin, while technical analysts primarily focus on trading models, which can give a good idea of where a certain asset is going in the near future.
Fundamental analysis
When it comes to cryptocurrency, you need to check all the boxes mentioned below to perform a deep fundamental analysis:
Cryptocurrencies represent the first new class of assets in recent decades, so it’s not easy to come up with the right investment strategy. In this article, U.Today sheds light on the main features of investments in cryptocurrency and the most popular long-term and short-term strategies that can be useful for those who are just starting or trying to survive in a bear market.
Why you should consider investing in cryptocurrency?
Despite the fact that top cryptocurrencies lost more than 90 percent of their value in 2019, there are still many reasons to invest in the market. For example, if we are talking about bitcoins, if you buy 0.28 BTC at this moment, you can be absolutely sure that no more than 1 percent will have more BTC than you. Therefore, you can easily become 1 percent in the hypothetical world of bitcoins.
Investment 101
For a start, it is worth mentioning that each investment strategy involves a set of rules that should make the most of your investment portfolio. Different investors have different styles and approaches, but in general they are all trying to achieve the same thing: to predict the behavior of a certain asset in the near future based on existing market data.
Depending on the type of data, we can distinguish two main investment styles - fundamental analysis and technical analysis. Fundamental analysis determines the intrinsic value of a certain coin, while technical analysts primarily focus on trading models, which can give a good idea of where a certain asset is going in the near future.
Fundamental analysis
When it comes to cryptocurrency, you need to check all the boxes mentioned below to perform a deep fundamental analysis:
- Market capitalization. The very first thing you should do when studying a certain cryptocurrency is to open the CMC and look at its market capitalization. For example, Bitcoin, the king of cryptographic protection, has a market capitalization of $ 62.7 million. Ethereum and XRP are constantly fighting for second place.
- White paper . Of course, during the peak of the ICO bubble, investors blindly invested money in virtually any project and still made a profit. However, as soon as the bubble burst, investors realized that this was a recipe for defeat, and they began to do at least a little homework. Reading the white paper of a project can be a good start to determine if a currency has intrinsic value.
- News . FUD spreads like fire in a crypto space, given the extreme volatility of the industry. Keeping track of recent events can give you a good idea of which cryptocurrency you should buy and sell.
Technical analysis
Now that we have covered fundamental analysis, let's focus on technical strategies. There are three main types of technical analysis:
- Moving averages (determining price trends for a certain period of time)
- Graphic patterns (support and resistance, trend lines, reversal patterns);
- Volatility (MACD, RSI, etc.).
Dollar Averaging (DCA)
Dollar Cost Averaging (DCA) is an investment approach that involves the regular purchase of cryptocurrencies with a fixed dollar amount. For example, you can set up a schedule on Coinbase to buy Ethereum (ETH) for $ 100 each month.
This is the laziest strategy - you should make every effort (just make sure that you have deposited funds into your Coinbase account). The lower the price, the more cryptocurrency gets into your hot wallet (and vice versa).
+ DCA helps to reduce extreme volatility in the long term, which is one of the main pain points in the cryptocurrency market.
Research shows that risk-averse customers usually see less profit with DCA than one-time investment,
Cost averaging strategy (sell rips, buy dips)
A cost averaging strategy is an alternative strategy that seems to work for investments that are highly variable.
This is a very simple strategy that involves the sale of crypto in the midst of a bull market and a lot of shopping when bears dominate. It doesn't even look like a strategy — just a crypto rule of thumb. However, there are certain recommendations that you want to follow to stay informed.
Here you should know for sure when the price of Bitcoin or Ethereum is rising, so as not to lose your bread money. Make sure you do not exceed your monthly spending limit.
Balanced portfolio
Bitcoin investors who have chosen this strategy can reduce their risks by evenly dividing their portfolio among various digital assets. It is also quite simple - you simply invest the same amount of money in each cryptocurrency in your portfolio (Bitcoin, Ethereum, Monero, etc.).
+ This strategy is for those who doubt which coin they should stick to.
- You will not be able to maximize your profits.
Capitalized portfolio
As the name suggests, investors create a portfolio, weighted by market value (top-10, top-20 or top-50) of coins, which will accurately reflect the current state of the mercury market. In addition, you can also invest in cryptocurrency indices, which usually follow the same approach.
Initially, crypto index funds were created by investment manager John Bogl, who had the idea to balance a portfolio with a market index. Consequently, you are not subject to any risks associated with individual coins - you only care about the general mood of the market.
Institutional investors who wish to plunge into the cryptocurrency may consider the following cryptocurrency index funds (Coinbase Index, CRYPTO20, Bit20).
+ You should not put your fingers on individual coins, the price of which can be reduced.
- With cryptocurrencies, the entire market usually copies bitcoins.
Unbalanced portfolio (collecting coins)
Managing an unbalanced investment portfolio is a bit more complicated, given that it is not possible to know exactly which coin will bring the best results. However, the reward will be much greater if you manage to hit the bull's eye. In the current bear market, it is advisable to invest in the estimated currencies that will remain here.
Obviously, only a professional investor will be able to determine which coin will gain momentum in the future and become the next Ethereum using a systematic form of analysis. Therefore, this investment strategy is definitely not suitable for beginners. If you decide to engage in this risky business, you should have a propensity to predict a positive price impulse.
Small investment
There are many approaches to collecting coins, one of which is investing in small capitals. Obviously, this is the most risky of them, but it can bring huge benefits in the future. The mode of action is quite similar to the traditional stock market. The only difference is that you invest in projects that can hardly be anything more than just a document. Investors usually shy away from coins that are outside the top 50, but it would be nice to devote a significant amount of time to studying individual tokens.
Considering the speculative nature of cryptocurrency, you must be very careful when choosing a certain coin. There are tons of outright clones that simply copy code with a few basic changes. Case in point: the Apollo NXT, which is currently trying to play a massive “pump and drop” scheme.
+ The obvious advantage of collecting coins is that you can jump on the footboard before a certain coin gets into the mainstream. The next bitcoin is somewhere nearby!
- It is much more likely that the coin of your choice will plop (there are a lot of dead coins on the CMC).
Hodl
HODL (“hold on to dear life”) is perhaps the most popular term in the cryptocurrency space. Yes, many people felt disappointed after the cryptocurrency fell into the death spiral, but you really believe in the fundamental value of cryptocurrency. If the most bullish bitcoin price predictions become a reality, you can make a fortune. It is very likely that the current bear market is just a blow to the road.
Let us recall the example of Ronald Wayne, who sold his 10 percent stake in Apple for 10 percent in the 70s (in 2018, Apple became the first company to reach a capitalization of $ 1 billion). For example, crypto-baron John McAfee predicts that by the end of 2019, bitcoin could overcome the mark of 170,000 dollars. Meanwhile, he still adheres to his prediction that by the end of 2020, bitcoin could reach 1 million dollars. May be. However, it should be remembered that hardly anyone can predict that Bitcoin can cause such disruptions in the financial world. + If you hold your coins, there is a good chance that you can pull out Kristoffer Koch and become uncleanly rich without even knowing it. - On the other hand, many investors who did not sell their coins in the midst of the bull market, have burned. Diversify your investment portfolio.
U.Today described the basic ways to manage your cryptocurrency portfolio, but, in fact, your choice of investment should not be limited to digital assets. Do not keep all eggs in one basket. In the middle of a bear market, you should look at a variety of other financial instruments (except for Bitcoin and Ethereum). For example, eToro offers more than 1200 investment options in six asset classes (stocks, indices, commodities, etc.).
+ In a traditional market, there is less volatility, which means your funds are more likely to be safe.
- You are unlikely to get a huge return on investment in the stock market (unless you hit the bull's eye by investing in a company with a low market capitalization, which could be the next Amazon).
Masternod start (passive income)
By running the main cryptocurrency node, you can provide a good (or even excellent) passive income. It depends on which incentive model is implemented for master node operators. Therefore, you get a return on your investment over a period of time. Each coin has a certain amount of coins needed to launch the master node. With Dash, for example, you should have 1000 DASH ($ 67,934 at the time of this writing). Of course, this amount is not available to the lion’s share of entry-level investors, but there are many coins of small caliber, which are much cheaper.
+ Operators of the master node are rewarded for the unit (the launch of the master node can turn into an excellent source of passive income)
- you need to have a significant number of tokens that will be blocked as a bet. Running a small-caliber master may not pay off. In addition, many critics see masters as a breeding ground for centralization.
Inconvenient way: investing in trading bots.
One of the main rules of cryptocurrency trading is not to be afraid of losses (considering that even experienced traders are not insured against them). Of course, this also applies to the traditional market (fervent crypto-hater Warren Buffet lost almost 23 billion dollars during the financial crisis of 2008. However, the AI era brought a completely new opportunity - cryptocurrency trading robots that allow you to trade even when you are sleeping or working Of course, your success mainly depends on the chosen trading strategy - FUD is a powerful force that can force you to sell your crypto if bad news persists in a situation where retention is more appropriate. On the other hand On the other hand, there is also greed that blinds rational thinking and therefore many people cannot jump off the ship in time.
Bots also save you time, because you can wake up just to see that a couple of your transactions have already been completed.
+ Trade bots save your time and make trade unemotional.
- Trading bots can be expensive (for example, Haasbot will cost you $ 1,200 per year), and they cannot take into account the most recent trading movements.
Mining hardware cryptocurrency: or not?
In most countries, bitcoin mining is not profitable at current prices, and even with first-class ASIC miners you are unlikely to earn any significant amount of money that at least allows you to cover the cost of your mining equipment. Nevertheless, the rapid decline in the mining industry has its silver lining - extremely cheap mining equipment. As U.Today previously reported, this is becoming a global trend - from China to South Africa. Consequently, we are dealing with a different “buy fail” situation in case the mining of bitcoins becomes profitable again. Do not forget that you can also mine Ethereum and many other Alt-Coins (Ethereum mining was more profitable in 2018). + You will be on top of your game if the profitability of mining Bitcoin increases.
- If the market remains in decline, your used video cards are sent directly to the trash can, given that they are not popular in the secondary market.
How to improve the strategy of investing in cryptocurrency?
In every strategy there is always room for improvement. So let's look at these most common investment tools that will help you make investments more efficient.
- CoinMarketCal. A community-driven cryptocurrency market calendar (this is a free tool to keep track of all the events that relate to your favorite coin).
- Tracking coins. A good tool for keeping track of your portfolio (you can always use wallets like Exodus, which display your portfolio as a percentage).
- MatchCoins.info. If collecting coins seems difficult, you can compare any two coins in the list.
- CryptoMiso. This is a Github monitoring tool that helps you stay up to date with the development of a specific blockchain.
- Finally, you can also follow the cryptocurrency news aggregators (which was mentioned in our initial recommendation on cryptocurrency investments).
Common mistakes that should be avoided by investors
Now that we have reviewed all the major strategies, it is worth mentioning a couple of shortcomings that relate to your experience in investing in cryptocurrency:
- Do not invest money in a project of which you have no idea. Do not forget to do your homework.
- Do not go all-in with one asset. Diversify your portfolio.
- Do not overload.
- Do not invest too much money in pennies.
- No margin trading if you are not an experienced investor.
Finally, we should also note that it is imperative to avoid various high-yield investment bitcoin fraudulent transactions, such as gains from bitcoins. USI Tech, which was once on the list of the best investment strategies, turned out to be a giant fraud. Another recently discovered fraud relates to a project called Filecoin - an entrepreneur from Hong Kong accused of fraud with people by selling them equipment specifically designed for mining this coin.
Cryptocurrency pomp schemes are also quite common, and you should avoid them at all costs. Do not listen to "gurus" who are ready to give you investment advice on a particular coin. To avoid becoming a victim of such fraud, read our tutorial on how rollout schemes work and what you can do with them.
This is it! I hope this article will help you survive this crypto-winter.
Disclaimer: The opinion expressed here is not an investment advice - it is provided for informational purposes only.
