The world of finance has witnessed an unprecedented surge in interest surrounding cryptocurrencies. A testament to this phenomenon is the fact that the total market capitalization of cryptocurrencies surpassed $2 trillion in 2021.
The modern investment landscape recognizes the significance of investing in crypto as more investors seek to harness their potential gains. But what strategies are best to do so? If you’re new to the crypto space, it can be a bit daunting.
Thankfully, we’re here to guide you. In this article, we’ll discuss eleven strategies to begin your crypto journey. When you’re ready to dive in, start below.
1. Educate Yourself
When investing in crypto, the first step will be to educate yourself. Many people come into the space excited to learn and are ripe with enthusiasm.
This is a good thing of course, but whether you’re a newcomer or a seasoned veteran, you’ll want to educate yourself so that you can navigate the complexities of the crypto market. This will help you make informed decisions and avoid common pitfalls.
You’ll want to familiarize yourself with the underlying technology (blockchain, cryptography, etc.), projects and use cases, market trends, etc.
There are countless ways to continue your growth too such as:
- Online courses
- Youtube and podcasts
- Forums and social media
- Experts and peers
2. Diversification Is Key
One of the keys to investing in crypto, much like traditional finance, is diversification. You don’t want to put all your eggs in one basket. The point of diversifying your crypto portfolio is to mitigate risk and capture potential gains.
As you know, Bitcoin is the most recognizable cryptocurrency, but there are thousands of others each with their set of unique features and growth potential. This comes back to educating yourself about use cases, development teams, and their communities supporting them.
Here is a list of cryptocurrencies you may want to diversify with:
- Privacy coins
- DeFi tokens
- NFT tokens
- Platform tokens
3. Risk Management
When you invest in crypto, there will undoubtedly be a certain amount of risk involved. This all of course depends on the current market.
From the outside looking in, investing in crypto is rather risky. People look at the volatility and price fluctuations and it scares them off. What you may not realize is that volatility may not always be a bad thing (more on this later).
You need to develop a prudent strategy such as only investing what you can afford to lose. Allocating a small portion of your investment portfolio to cryptocurrencies can help manage potential losses.
4. Stay Updated
Crypto moves fast you need to stay in the game to be able to make informed decisions. There are a multitude of factors that influence the cryptocurrency market such as regulatory developments, technological advancements, and market sentiment.
Cryptocurrency regulations are still evolving in many jurisdictions too. Changes in regulations can significantly impact the market and your investments. Stay informed about the legal framework in your country and internationally to ensure compliance and protect your investments.
Be sure to go out of your way to follow reputable cryptocurrency news sources, and social media accounts of industry leaders, and participate in online and offline communities on Meetup, Discord, Telegram, X, etc.
Using decentralized social media platforms is yet another way to stay in the loop. You can also become one of these crypto influencers when you become informed enough, many of which are where you can earn crypto by doing so. These platforms include Publish0x, read.cash, Hive, etc.
5. Long-Term Vision
Learning when to invest in crypto is a definite skill. While you can learn day trading and be profitable with it, you’ll have to gain a deep understanding of the market and be able to pull the trigger with quick decisions. It’s not for the faint of heart or the overly emotional.
On that note, you’ll want to avoid emotional trading entirely. This includes FOMO (Fear of Missing Out) and FUD (Fear, Uncertainty, and Doubt). Resist the urge to constantly buy and sell based on short-term fluctuations.
For these reasons, many investors will adopt a long-term vision. This comes back to doing your research and identifying projects with strong fundamentals and visionary roadmaps.
You need to develop “diamond hands” and patiently hold your crypto assets through market fluctuations. Holding has the potential to yield significant returns if the project’s potential comes to fruition.
6. Security Measures
With any new or emerging technology, there will be security concerns. You want to familiarize yourself with proper storage. For example, you never want to leave your crypto on an exchange.
Follow the mantra, “Not your keys, not your crypto”. This refers to your private keys. Anyone who has these keys has access to your crypto so you want to safeguard it with your life.
While on the topic of exchanges, you always want to use reputable and long-standing exchanges. If you want even more control, look into decentralized exchanges (DEXs).
There are other things you can do to protect your crypto assets like using cold storage wallets. These are hardware wallets and are seen as more secure since they’re 100% offline.
You can use hot wallets (ones connected to the internet) since they are more convenient. Just be sure to not hold more than you’re willing to lose since you are more vulnerable using them.
You’ll also want to be cautious of phishing scams, and fraudulent projects, and enable two-factor authentication (2FA).
7. Set Clear Investment Goals and Limits
Another key aspect of investing in crypto is to first define your goals. You want to establish clear limits for both gains and losses from the get-go.
Have predefined profit-taking and stop-loss points. Setting these boundaries allows you to take profits when your investments perform well and limit losses if the market turns against you.
8. Dollar-Cost Averaging
Investing in crypto can be dynamic and unpredictable. This is often due to price volatility and market uncertainties. You need something more predictable and constant like dollar-cost averaging (DCA).
The process of dollar-cost averaging is simple, You buy into a crypto over regular intervals regardless of market conditions. This is the opposite approach of trying to time the market buying at the lowest point.
By investing a fixed amount consistently (e.g. weekly or monthly), you remove the emotional aspect of day trading.
This strategy is based on the principle that, over time, you’ll accumulate more assets when prices are low and fewer when prices are high. This effectively reduces the impact of short-term volatility.
Some apps like Cash App and platforms will let you even have a “set it and forget it approaches”. You simply input how much you’d like to invest and how over what time frame. You’re always free to start and stop as you please.
9. Buying Micro Cap Altcoins
While you can buy into behemoth cryptocurrencies Bitcoin and Ethereum, some fly under the radar. These are known as micro-cap (referring to market capitalization) coins.
This investing approach is high risk/high reward. It caters to those who seek potentially explosive gains while recognizing the inherent challenges.
The market cap of these coins is small because of limited adoption, recognition, and trading volume. You want to conduct thorough research and be very wary of hype.
10. Arbitrage Trading
There is another investment strategy known as arbitrage trading that capitalizes on market discrepancies of the same crypto asset. Prices vary across exchanges due to supply and demand imbalances, geographical differences, trading volume, etc.
Arbitrage presents an opportunity to profit from these temporary imbalances.
Other than exchange arbitrage, you can look into the following strategies:
- Spot arbitrage
- Triangular arbitrage
- Futures arbitrage
11. Yield Farming Coins and NFTs
Yield farming, also known as liquidity mining, involves providing liquidity to decentralized finance (DeFi) protocols in exchange for rewards. Participants deposit their cryptocurrencies into smart contracts that power various DeFi platforms, enabling others to borrow and trade those assets. In return, participants receive yields in the form of additional tokens, often the platform’s native token.
Non-fungible tokens (NFTs) are unique digital assets that represent ownership of a specific item, piece of content, or artwork. Unlike cryptocurrencies such as Bitcoin or Ethereum, which are fungible and interchangeable, NFTs are indivisible and cannot be exchanged on a one-to-one basis.
There are many benefits to investing in NFTs such as:
- Digital ownership
- Marketplace opportunities
- Price volatility
NFTs and yield farming can intersect through platforms that offer NFT-based DeFi products. Some DeFi projects allow users to stake NFTs as collateral to earn yields, expanding the use cases of both concepts.
Consider These Strategies When Investing in Crypto
There’s no denying that cryptocurrencies present a unique opportunity for enthusiasts and speculators alike. As you can see there are many ways to start investing in crypto.
The beauty is that crypto levels the playing field, allowing for all to enter the space without permission. There is power in being able to control your money without third parties or intermediaries.
One more way to enter the crypto space is through our crypto hedge fund, True Code Capital. Don’t hesitate to contact us to get started.