Whether you’re looking for a side gig, a hobby, or even a career, crypto investing can be a lucrative endeavor.
The blockchain industry is young and still ripe for disruption, which provides a major opportunity to profit. Let’s explore three cryptocurrency investing strategies.
Like everybody else, you are here to make money right?
And you see crypto as your one-way ticket for a hefty pot of gold. It is a great wealth creation machine, I’d give you that. But if you want to have better odds than winning the lottery, you need a proper strategy.
Back in early 2017, just about any new cryptocurrency project can spike 20x or 30x in a few weeks or months. So there was no problem making money even for new investors.
Today, the crypto landscape is quite different. But that doesn’t mean there is no pot of gold anymore. And it certainly doesn’t mean the days of 20x and 30x are over.
Crypto is still in its bleeding-edge phase. The entire market cap hasn’t even reached a trillion dollars. The upside potential is still enormous.
By the way, I’ve only included the top cryptocurrency investing strategies that have a high probability of earning profit.
Now before we proceed any further I want to stress that HODL is not a crypto trading strategy. It just isn’t. I’ve tried it for two years and can testify that it’s a terrible way to make money in crypto.
For that reason, I didn’t include it in this list.
3 Crypto Investing Strategies
1) Dollar Cost Averaging
Good for: Busy people who have no time to spend on the market
Pros: very easy; not time-intensive
Cons: not as profitable as other strategies; just as likely to backfire
This strategy is fairly easy for new investors to follow. Dollar-cost Averaging is simply the purchase of cryptocurrencies at regular intervals no matter which direction the price is moving. This scheme can last several months or indefinitely.
While the amount invested in each interval remains the same, the total number of coins you buy will vary depending on the price fluctuations.
Dollar-cost averaging allows an investor to average out his purchase price within this set intervals, thereby, managing short-term risk.
The average price will ultimately end up being much lower or higher than if you were to purchase in one payment.
For instance, if you plan to purchase $3000 in EOS but don’t want to do it in one go. Therefore, you decide to invest $750 every first day of each month for the next four months.
For this example, let’s use the real chart history of EOS from June to September 2019, it would look something like this:
June — the price of EOS is $8.24. You buy 91.01 EOS.
July — the price of EOS is $5.90. You buy 127.11 EOS.
August — the price of EOS is $4.42. You buy 169.68 EOS.
September — the price of EOS is $3.04. You buy 246.71 EOS.
If you had followed this strategy, you’d be able to accumulate 634.51 EOS, instead of owning only 364.07 EOS had you purchased it all in one sitting the first month.
Afterward, it’s your choice whether you want to hold on to your cryptocurrency or sell.
Some investors prefer to continue buying indefinitely until the price goes to the moon. And then they sell.
Among the cryptocurrency investing strategies, this is the most beginner-friendly. With that being said, this is also the least effective money-making technique in this list.
I suggest that if you have more time, try to learn the other strategies as they have better chances and higher profits.
2) Trading Strategy
Good for: People who have a lot of free time or are planning to make crypto their primary source of income
Pros: very profitable; earnings are consistent
Cons: relatively difficult to learn; mentors are costly
Some people might prefer to call this technical analysis, but it’s not. Let me show you the difference.
As per Investopedia,
technical analysis is a trading discipline employed to identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume.
But it’s not a strategy by itself. It is only one ingredient of it.
If you want to make money in crypto, you need a detailed systematic plan on where to place entry points, exit points, as well as what tools to use.
A trader needs to know when to trade and when not to trade. You have to have guidelines that objectively let you decide the best course of action.
Indicators
Indicators are one of many trader tools, but note that they are not useful on their own.
Therefore, it is important to know which indicator to use, because there over five thousand of them. How the hell would you know which one to use?
Some self-proclaimed “crypto trading gurus” will teach phony tactics using these tools. As if indicators alone can make you money. Utter nonsense.
I worked for one of the best traders in the world, and he showed me the truth. With evidence! No indicator alone can consistently win profits for you.
Resistance and Support Levels
Resistance and support levels are barriers that prevent the price of a token from getting pushed in a certain direction.
Support is when a downward price movement (selling) is interrupted because of buyer demand.
Resistance is when an upward price movement (buying) is interrupted due to a sell-off when the price becomes too high.
Trading strategy is more of a short-term profit-making strategy, usually lasting hours if not a day or a week. That said, some trends can last for months.
By that I don’t mean you can only profit short-term. Because you can definitely make money indefinitely in trading. I meant that money is quick with this type of crypto investing strategy.
Learn and Get a Mentor
But to become competent at trading strategy, you have to be comfortable analyzing charts. It won’t give you a crystal ball, but it allows you to manage risks and maximize profits in order to make better and more informed trading decisions.
I highly recommend you get a proper mentor when learning to trade cryptocurrencies. This isn’t something that you can easily learn on your own.
Maybe you can, but it’s going to take a while and you will make a whole lot more mistakes. Furthermore, you will likely catch bad habits that will be very difficult to unlearn later on.
It’s just not worth it. If I were in your position, knowing what I know, I’d rather spend money on a mentor than blowing out my first few trading accounts.
Learning proper trading strategy is probably the best if not second best cryptocurrency investing strategy you can make. The other one being value investing.
3) Value Investing
Good for: Semi-busy people who have spare time probably on weekends
Pros: extremely profitable (5x-20x); not very time intensive
Cons: inconsistent profits; a little difficult to learn
Value investing is less about charts and trend lines and more about finding crypto assets that are priced below their intrinsic value. The best measuring technique for value investing is fundamental analysis.
Fundamental Analysis
According to Investopedia,
fundamental analysis is a method of measuring a security’s intrinsic value by examining related economic and financial factors.
This involves studying anything that could influence an asset’s value such as the founding team, the industry it is servicing, the partnerships it has garnered.
The goal here is to be able to pick out undervalued cryptos from a sea of substandard blockchain startups.
These “gems”, as most crypto enthusiasts call them, are usually altcoins with low market capitalization but have phenomenal capabilities that exceed their competitors, or even outclass them.
Fundamental analysis in the crypto industry works very differently from traditional markets since there are no cut and dried metrics to assess a coin’s value.
Furthermore, the industry is nascent and highly speculative, which tends to have higher risks and rewards.
However, there are several factors that can serve as substitute metrics for a coin’s value such as:
- Proof of Concept
- Technology
- Team
- Roadmap
- Liquidity
- Tokenomics
- Real World Use case
- Competitors
- Whitepaper quality
- Community support
This type of investing strategy requires a bit of research, which shouldn’t be a problem since most altcoin developers provide most if not all the necessary information online.
Successful execution, however, involves timing as well. To know when to buy and when to sell, you must be updated on major announcements of the digital coin market.
Announcements include:
- Partnerships
- Exchange Listings
- Forks (when an altcoin splits into two, creating two separate currencies)
When Enjin Coin announced its partnership with Samsung, its value swiftly pumped from $0.09 to $0.18 (100% increase) in less than seven hours, and then peaked at nearly $0.25 after two days.
Value investing is more of a long-term strategy but it is likely the most rewarding. Back in 2013, many people scoffed at Bitcoin when it was being traded at $100. But some value investors saw something others couldn’t.
They saw the underlying value of Bitcoin and years later became multi-millionaires. Even kids.
Conclusion
These three cryptocurrency trading strategies may seem different, but they work best when implemented together.
Trading and value investing both have weak points, but they complement each other.
Dollar-cost averaging still requires studying the coin you’re investing in as well as analyzing trends, therefore, it needs to utilize both fundamentals and technicals a little.
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