Move aside, real estate and stock investors. There’s new money on the street, and it comes in the form of Bitcoin billionaires. Folks like Changpeng Zhao and Brian Armstrong are raking in huge amounts of cash thanks to their crypto ventures.
Though it may seem unattainable, every millionaire or billionaire on that list started somewhere. At some point, they purchased their first Bitcoin and used some stratagem to balloon their investment into six figures and beyond. What crypto investing strategies do you need to make it big in the crypto scene?
In this guide, we will teach you popular crypto investing strategies and techniques to boost your cryptocurrency fund.
Know the Different Cryptocurrencies
Cryptocurrency is unlike any form of currency preceding it. When it comes to dollars and euros, the only thing that matters is its strength and exchange rate. With cryptocurrency, there’s a lot more at play.
The only thing cryptocurrencies have in common is the blockchain technology they run on. All of them use different proofs different ledgers, and have their own unique community. Investing in Bitcoin is a world apart from investing in Ethereum.
You wouldn’t invest in Apple stock without knowing everything there is to know about Apple’s operations and market performance. In the same vein, you should have more than a passing familiarity with all the major coins. At the very least, understand how they all function on a basic level.
Some coins offer promise far beyond monetary weight. Take Ethereum, for example, whose blockchain enables smart contracts and decentralized apps. It’s also one of the few coins that’s updating its blockchain for reduced energy consumption and scalability.
Diversify, Diversify, Diversify
Diversification is perhaps the central pillar of every crypto investing strategy. To put it in a single phrase, don’t keep all your crypto “eggs” in one basket. Spread out your investment as much as you can so no single investment is capable of ruining your crypto fund.
Learn how to build a diversified portfolio in a robust and complicated crypto sphere. In traditional investing, you might have a healthy mix of stocks, bonds, mutual funds, and EFTs. In cryptocurrency, that diversity comes as a spread of different coins.
Understand Each Proof Method
The “proof” is how miners mine a coin. It’s a consensus mechanism that keeps cryptocurrency secure and tamper-proof. Without it, cryptocurrency would not be able to be decentralized and trustless.
Bitcoin, for example, uses “proof-of-work.” This means that the computers that put in the “work” (crunching numbers) get newly-mined Bitcoin. This affects how miners mine Bitcoin, as they often require massive ASIC server houses to validate new transactions.
Other coins, such as Ethereum, use “proof-of-stake.” This means that people who have a “stake,” or a significant sum of the coin, have a greater sway on validation. Big-rig miners can’t just brute-force their way in to lap up new coins.
Proofs and Your Investment Strategy
As you can imagine, this affects your investment strategy. How you invest in Bitcoin will differ from how you invest in Ethereum. Don’t invest in a coin unless you know what proof it uses — and how that proof influences its future.
Take, for example, Ethereum. It uses far fewer resources to mine coins than Bitcoin, a notorious power hog. For this reason, many miners across the world have gone belly-up as Bitcoin has proven unprofitable.
What does this mean for your strategy? Carefully consider the future and direction of a coin. Ethereum might be the better bet here since there’s more stability in terms of its validation architecture.
Factor in Volatility
Fiat currencies have a lot of problems, but they have one good thing going for them: they are stable. The value of the dollar does not change by large amounts over the course of a day or week. It can take years for a dollar to strengthen or weaken.
Cryptocurrency, on the other hand, is volatile. Price fluctuations can happen on a minute-to-minute basis. One second your satoshi of Bitcoin is worth $50, the next only $25.
This is both a blessing and a curse. On the plus side, you don’t have to wait long to sell your coin if the price drops. You can usually wait a few days or weeks for it to spike again, at which point you sell.
On the downside, your investment can lose a significant amount in a short period of time. Learning how to deal with this volatility will ensure you don’t get caught with your pants at your ankles.
HODL (Hold on for Dear Life)
HODL, like FUD and FOMO, is common slang in the cryptocurrency lexicon. “Hold on for dear life” means, in essence, sitting on your investment. Many experts recommended that beginners HODL by buying coins at a low period and waiting.
It’s no different than how you might invest in stocks or anything else where market value changes. There is always going to be another “hill,” as it were. Waiting until then is a nail-biting experience, but it will yield a handsome return.
Limit Day Trading
Day trading is what the name implies. You trade your coin on a frequent basis, either day to day or multiple times on the same day. The idea is to buy low and sell high, making an incremental ROI.
Day trading is a high-risk investment strategy in the traditional sphere. In the crypto sphere, it may seem like the opposite is true. Volatility should, in theory, allow for very profitable day-to-day trading, right?
There’s one obstacle: gas. Gas refers to the fees you have to pay to trade cryptocurrency. These fees go to your trading platform and the miners to compensate them for their server resources.
These gas fees add up very, very quickly. They are significant enough that they can wipe out those small, incremental gains from day trading.
This isn’t to say that you should avoid day trading altogether. Rather, don’t make it your main locus. Day trade from time to time only when there are large enough swings to cover gas fees and then some.
Avoid Pump-and-Dump Schemes
Pump-and-dump schemes have become notorious in recent years. They are a scam, make no mistake, and they work something like this:
- A group of investors make a new coin
- They pre-mine the coin
- They hype the coin on social media
- New investors buy en masse on release
- Original investors sell off all their pre-mined coin
- The coin plummets in value
- New investors lose all their money
Pump-and-dumps have happened hundreds of times just in the past few years. It’s a get-rich-quick scheme that uses FOMO and FUD to get people to empty their wallets. Sadly, it always ends the same: ignorant investors are stuck with a junk coin.
If you see people hyping a new coin, don’t dive in headfirst. Stay at a distance and see how things are going in a few months. It may seem like you’re missing out, but it’s better to miss out than get screwed over.
Protect Your Wallet
Part of your crypto investing strategy must be protecting your wallet.
Your wallet is a digital “repository” for your coin. It’s not like a bank account where a server hosts it. Rather, it’s an address on the blockchain that ties coin ownership to you.
Being that they are digital, hackers love to steal wallets. All they need is your address, password, and seed phrase to take it from you. Then, all they have to do is dump the funds into a different wallet and leave you with nothing.
Since cryptocurrency is decentralized, there is no recourse for stolen funds. Security is entirely in your hands. Even if you use a trading platform’s digital wallet service, don’t put all your trust in them!
Thousands of people around the world have lost access to their wallets because of poor security. Don’t become a victim like them. Take your wallet security seriously, as you might with your valuables.
Tips for a Crypto Wallet
There’s a lot you can do to secure your crypto wallet.
First, exercise the same caution you would anywhere else. Set a strong password that is not easy to guess, and change it from time to time. Use a password manager to generate and store your wallet’s password.
Consider using “cold storage.” That is, storing your wallet only in an offline format. This could be a hard drive, a piece of paper, or an engraved metal tag that hackers cannot access.
If you do use online wallets, make sure to use two-factor authentication to secure them. Keep your seed phrase safe and offline. Never share your wallet’s information, even with close friends or family members.
Find More Crypto Investing Strategies at TrueCode Capital
Crypto investing strategies can seem confusing and at odds with your traditional investing expertise. On the contrary, though, cryptocurrency makes itself accessible to new investors. Before you dive in, use this guide as a touchstone to help you know what’s most important when starting out.
At TrueCode Capital, we provide professional crypto hedge fund investment strategies. Download our strategy performance information to get started.
