Investing in crypto has become one of the hottest investment opportunities ever since Bitcoin Launched in 2008. Originally only available to a selected few who had the knowledge and technical expertise, now anyone can take advantage of it.
Experts believe digital currencies are the future of the economy and companies are starting to accept them as a payment method. This makes it the perfect time to start investing in crypto, as the legitimacy of the currency has started to solidify.
However, Crypto continues to be highly volatile, which can make it a risky investment for anyone. By knowing the basics of how investing in crypto “should” be done, you are likely to minimize this risk.
In this article, we will discuss 4 strategies you should know about and consider to start your journey. Most of the work when investing in crypto successfully is doing your research. By reading this article, you already are on the right path toward harvesting the power of crypto to improve your finances!
Important Considerations About Crypto
Just like any other type of investment, there are many pros and cons to investing in crypto. As such, it is important to have an understanding of what crypto is and how it works before jumping into it.
We wrote a basic explanation of what crypto is and why it is becoming increasingly relevant. If you don’t know what crypto is, you should go and check it out! https://turbowallet.com/crypto/why-crypto-personal-finance-is-the-latest-craze/
One of the biggest risks of investing in crypto is also one of its pros: its high volatility. While usually seen as something negative, this characteristic is also what allows investors to generate big gains when holding crypto. This makes this trait a kind of “Is the glass half empty or half full?” kind of deal.
Considering this volatility is essential to choose the strategy that will better suit your needs when investing in crypto. If you are someone who doesn’t want to actively trade in the market, a long-term investment might be the right choice for you.
On the other hand, if you have a solid grasp of the technology or financial markets, you may consider something like day trading.
Volatility is widely considered the most important consideration before jumping into the world of crypto. We agree with that assessment. As always, any type of investment should be done only by ensuring you have savings and financial stability before investing. Crypto is no different but quite the opposite.
While this warning might sound ominous, it applies to any investment you might consider in the future. Crypto is gaining legitimacy quickly as regulators start creating a legal framework for it. This is resulting in increased oversight that makes it safer for new investors to take advantage of it.
Do your research to differentiate between serious cryptocurrencies and those looking to capitalize on the craze. This will ensure your journey in the crypto world will be smooth and safe.
4 Strategies To Consider When Investing In Crypto
There are many ways to approach crypto investment. Each of them will offer distinct benefits depending on what you are looking to achieve. Are you looking to minimize risk in exchange for steady but lower gains? Are you a risk-taker? Are you looking to minimize the amount of effort?
Deciding what your priorities are when it comes to investing in crypto is essential to choose the correct strategy for you. While these strategies are perfect for beginners, they still offer different approaches to ensure one of them fits your needs.
However, they all have something in common: You will need to do your research on the cryptocurrency you are investing in. Be it Bitcoin, Ethereum, DogeCoin, Cardano, Ocean, or any other, you need to know what to expect.
As this guide is focused on crypto investment strategies, we will not delve into the research process. However, there are great sources of information like Motley Fool that will provide you with the latest information and insights on the crypto market.
By knowing what is going on in the crypto space, you will be able to find the project that could benefit the most from it in the near future. For example, at the time of writing this article, Decentralized Finance is one of the hottest niches in crypto. This makes Ethereum and its potential competitors (Cardano, Polkadot, Solana, etc), important projects to keep an eye on.
Reading the insights of experts like the Motley Fool team will provide you with the information you need to reach a decision. If you are someone who enjoys reading the news and reaching your own conclusions, crypto news outlets like CoinDesk, Blockonomi, Cointelegraph, and Decrypt might be a good choice for you.
Once you have done your research and know what projects you might be interested in, choosing the proper strategy should be a breeze. Let’s give a look at some of them!
1. Dollar Cost Averaging
One of the most popular and tested trading strategies, Dollar Cost Averaging (DCA) is perfect for beginners. This strategy will allow those interested in investing in crypto in the long term while creating a big portfolio progressively.
The strategy is dependent on you being able to be constant in your investment. The process is simple. Choose a day of the week and a certain amount of money you can commit to investing weekly. Then, you just wait until that specific day and invest the established amount into a cryptocurrency of your choice.
Here is an example: You are planning to invest $400 a month in crypto. When following a DCA strategy, you would invest $100 worth of crypto each week. This means that some weeks you might acquire 40 coins of a certain cryptocurrency, while others you might have less or more depending on the value at the time.
Dividing your investment in such a way ensures that you won’t be as affected by market volatility as with other strategies. This process can also be fully automated by using features such as BlockFi’s recurrent trades.
A good rule of thumb when using DCA is to only buy a specific cryptocurrency only when it has seen its value fall during the last 24 hours. This means if coin A is up 1% while B is down 5% in the last 24 hours, you should buy coin B. It is easy for new crypto investors to “fall in love” with a coin, which is a mistake.
Dollar Cost Averaging is a great wait to start investing in crypto not only due to its safety but also because it forms a habit. When following this strategy, you will also learn to recognize market trends, which will be useful in the future.
2. Golden Cross VS Death Cross
The Golden Cross VS Death Cross is an investment strategy that depends on technical analysis. By looking at data charts for a cryptocurrency, you will be able to determine if a long-term bull market is likely to go forward (a golden cross) or a long-term bear market is approaching (a death cross).
To determine the type of cross, you will need to look at a two-moving averages chart. This chart shows the mean average price of any given asset during a specific period of time. Once you select a 50-day moving average and a 200-day moving average, you will need to look for their average crossover.
This image shows what a golden cross looks like:
On the other hand, this is what a death cross looks like:
This is another long-term strategy that works better if you are investing in crypto for more than a year (which you should totally do). Charting platforms like TradingView will offer you tools to do this type of analysis at no cost. Most crypto exchanges will also offer such features.
3. RSI Divergence
Relative Strength Index is an indicator used to measure the changes in price that a cryptocurrency has experienced in recent times. This index will be representative of its momentum at any given time.
RSI values will always range from 0 to 100, with a higher value indicating the asset is close to the highest value. When the RSI is under 30, the asset is considered to be oversold (likely to rise) while a value over 70 suggests it is overbought (likely to drop).
To use this strategy you will need to look at the price of the asset over 14 periods. This means 14 days on daily charts, 14 hours on hourly charts, and so on. Then, you need to calculate the following equation: RSI = 100 − 100 / (1 + (AVERAGE_GAIN / AVERAGE_LOSS).
While it might seem intimidating, the equation is pretty easy to solve and will provide you with valuable information. By applying it to the tokens you are considering investing in, you will be able to make better investment decisions.
Another common strategy when investing in crypto in the long term is to take advantage of staking. This feature allows investors to generate passive gains in the form of rewards for holding onto their crypto.
The process is as simple as it gets: Acquire the cryptocurrency you want to invest in after researching it, go to your staking platform of choice, and stake your holdings. After doing this, it is just a matter of waiting.
While the mechanism behind staking will change from platform to platform, your crypto will always be working in some way. Certain cryptocurrencies will be used to secure the network they come from, while others can be invested on your behalf by the platform.
As long as you are using a trusted platform, you don’t need to worry about the technical aspect.
Staking is the principle used by platforms like BlockFi to provide its users with passive income reminiscent of saving accounts. The added benefit of staking is that not only you are earning rewards in the form of crypto, but your holdings can also gain value while staked depending on market conditions.
For example, Let’s say you acquired 1000 tokens of cryptocurrency “A” at a price of $1 each. After 12 months, “A” saw its value increase by 50%, this means your holdings would normally be worth $1500 at that point.
If you staked your “A” holdings, earning 10% as reward… You now have $1650 instead of $1500 without doing any extra work.
When using this strategy, make sure to look for platforms that offer daily compound interest like BlockFi. This will maximize your profit as interest is paid daily and will add up!
It is also important to keep in mind that you can maximize this strategy by using the ones we mentioned before. When it comes to crypto, multiple pieces can come together to create something bigger and better. It is up to you to find the perfect formula for your needs!