Cryptocurrencies have become an emerging asset class these days. With BTC being widely adopted as a form of payment, it is a must-have in the portfolio mix. It took almost a decade for crypto exchanges and investment apps to become mainstream. Until then, investing in cryptocurrencies was a fairly difficult activity. But now, you can easily do this at your fingertips on your mobile phone. Before you start your crypto investment journey, is vital to consider the crypto investment landscape and volatility. But by selecting the right cryptocurrency investment strategies and following them rigorously, nothing can stop you.
With awareness picking pace, retail investors have started investing in cryptos. It is important that we do it systematically and not based on intuitions. So, in this article, let’s learn more about crypto investing and the best cryptocurrency investment strategies.
7 Best Cryptocurrency Investment Strategies
Here are the 7 best crypto investment strategies for beginners to start their investment journey.
1. Buy and hold (HODL)
Buy and hold is a long-term passive strategy that most investors use. This strategy can help you maintain a stable portfolio, irrespective of fluctuations over time. This crypto investment strategy can help you achieve your set long-term goals, focusing on value creation.
In the crypto world, this ‘buy and hold strategy is popularly referred to as “HODL”. It means “Hold On for Dear Life” and is interpreted as ‘HOLD’.
2. Dollar-cost averaging (DCA)
Dollar-cost averaging (DCA) is one of the most popular cryptocurrency investment strategies. With DCA, you can invest in increments at regular intervals, just like SIPs. It reduces the impact of volatility by averaging the purchase price of the crypto. It takes away the burden of trying to time the market.
3. Value investing
Among all cryptocurrency investing strategies, value investing is one of the more effective ones. Value investors seek out assets that they believe are underpriced as compared to their perceived value. Value investors look at different aspects, such as:
- Real-life use cases
- Background of the founding team
- Engagement of the community
- Competitive landscape
- Blockchain network
Research is the foremost step to building conviction in your crypto portfolio as a value investor. So don’t skip research!
4. Buy low, sell high
Buying low and selling high is a strategy wherein you buy at a lower price and sell it at a higher price. It may sound like a simple crypto investing strategy. But, it is difficult to determine whether the price is low enough to buy or high enough to sell then. Hence, using indicators that gauge the price action of the crypto is critical. One of the most user-friendly indicators is the weekly or monthly moving average (MA). There are several other indicators available to choose from.
For instance, you can set buy and sell triggers for Solana through this crypto investment strategy. You can set it at the crossovers of weekly or monthly moving averages.
5. Growth Investing
The next strategy in our crypto investment guide is Growth Investing. It is simply investing in cryptocurrencies that are in their early stages and are expected to grow over time. But this can also be a risky task to do, so research is a must. Various cryptocurrencies might be affected by different growth levers driving their price. If you are looking at a long-term investment horizon for massive returns, then this is it. To be able to spot such an opportunity and find the right crypto, you need to spend some time on research.
For instance, let us consider gaming tokens. In this case, it is important to look at player statistics, on-chain activity, NFT price action, etc. Whereas for layer 1 protocols, it is vital to look at the growth of the developer ecosystem and the projects it hosts.
6. Balanced Portfolio
A balanced crypto portfolio is based on the idea of investing in the asset class as a whole. It seeks to profit from the overall growth and adoption of the cryptocurrency market.
Hence, the losses incurred in any single crypto will not impact the portfolio as a whole significantly. A balanced portfolio needs to be rebalanced periodically to tackle the changes in the market.
7. Unbalanced Portfolio
An unbalanced portfolio is a biased portfolio with a higher allocation towards a select few cryptos. It is selecting only those cryptos to invest in based on your research. While common wisdom tells us to balance the portfolio from time to time, it might not always make sense.
Cryptocurrencies are volatile and move in trends. You might sell an up-trending cryptocurrency and buy an underperforming one when you rebalance it. Thus, an unbalanced portfolio might be concentrated amongst a few cryptocurrencies.
Some investors have invested their entire portfolio in crypto blue chips, such as Bitcoin and Ether. Over the long term, this has been a comparatively stable and high-performing portfolio.
How to Choose the Cryptocurrencies to Invest in
Before making any investment decisions, it is important to get the hang of the crypto ecosystem. Analyzing cryptocurrencies can be different from traditional assets like stocks. Thus, it is vital to come up with your own cryptocurrency investment strategy. You can do it by considering your risk appetite and knowledge base.
The price history and market cap of a particular cryptocurrency can give an overview of its price stability and adoption. It also indicates the impact of various real-life events on the price of crypto.
How to Analyze a Cryptocurrency
Analyzing cryptocurrencies is a time-consuming process. The investor must go through research of online documentation, reviews, key metrics, and many more. But, you have to be sure with the research you do on crypto coins, or your capital will be at risk. Doing proper research is suggested before investing in crypto.
Below are a few key factors you need to consider while analyzing a cryptocurrency
- Will he be able to execute what he has promised?
- Do any of the people I trust in the crypto diaspora vouch for him?
- What is the size of the market today?
- What is the scope of the opportunity in the next 5 -7 years?
- How quickly can the market grow?
- Product review and usability
- Use the product yourself before you invest in it and understand its value.
- Understand the community surrounding the product. And how its views are regarding the current state of the project.
- Traction, timeliness, and token
- Analyze traction by tracking the growth and development of the project. On-chain data such as Total Value Locked (TVL), and active wallets reveal a lot of information about the project.
- Assess the timeliness of the project
- Evaluate how the token will add value to the ecosystem. Assess lockups, issuance rates, release schedules, growth loops, etc.
- Competitive analysis
- Who are the major competitors?
- What is the moat, and is it sustainable?
Yes, we know this can be an exhausting process. You can also invest in ready-to-invest baskets of cryptocurrencies called Coin Sets. These are curated by experts with more than a decade of experience in the markets. Each Coin Set is designed based on a theme or an idea.
Later, the short-listed cryptocurrency projects go through multiple levels of analysis. Finally, a basket of 4-10 cryptocurrencies is picked up for the Coin Set. Investing in a Coin Set will trigger buy orders on your linked crypto exchange account. And those cryptos will be bought automatically with ease. Coin Set can provide you with a hassle-free and safe investment in crypto. You can further opt into multiple Coin Sets to diversify your portfolio.
Investing in cryptocurrencies is not for the faint-hearted. The volatility and the down-trending months can test your patience. But, if you stick to your cryptocurrency investment strategy, you can build long-term wealth. Many investors who have seen their portfolio in red, but decided to HODL, have been very profitable in the end.
This blog serves as a crypto investment guide for beginners on the best cryptocurrency investment strategies to know in 2022. In case you do not want to invest on a DIY basis, we have a solution. You can explore investment products like Coin Sets, which can make your job easy, helping you earn risk-adjusted returns.
1. Can you get rich investing in cryptocurrency?
Cryptocurrency is believed to be a high-risk, high-return asset. It is undoubtedly true that if invested smartly and strategically, the returns could be profitable but walking into crypto markets with an assumption to make quick bucks is probably foolish.
2. What is the most profitable crypto strategy?
There are a variety of strategies that could be used to invest in crypto smartly. Some of them include Dollar Cost Averaging, HODLing, Buy low & sell high, etc. However, one must always research the fundamentals of the coins before investing in them. Strong fundamentals are a sign of strong investment.
3. What crypto should I invest in as a beginner?
As a beginner, you may want to make yourself comfortable with the volatility of this asset class, hence investing in blue-chip cryptos might be a good idea. Blue chip cryptocurrencies are cryptos with a long-standing history, strong fundamentals and are considered to be relatively stable than other smaller cryptos. These cryptos include Bitcoin, Ethereum, Ripple, etc.
4. Is cryptocurrency a good investment?
Yes, investing in cryptocurrency can help you diversify your overall portfolio. Including cryptocurrencies based on any of the cryptocurrency investment strategies may give you returns in the long term. Depending on your risk profile, you can choose any strategy or a mix of multiple strategies.
5. Is it still profitable to invest in cryptocurrency?
The crypto market is still in its nascent stage. Investing in cryptocurrencies now can lead to exponential gains in the future. As new projects and technological improvements come up, being an early investor can provide good gains. Besides, there are multiple passive investment opportunities too. One is, staking crypto on protocols like Anchor and Mirror. Therefore, it is definitely profitable to invest in cryptocurrencies.
6. Is it good to invest in cryptocurrency for the long term?
Yes, investing in cryptocurrencies for the long term is the right approach. The short-term volatility can sometimes induce ‘FOMO’ (fear of missing out) among retail investors. But sticking with the investments can lead to creating wealth. However, volatility can sometimes present short-term profit-making opportunities.