7 Best Cryptocurrency Investing Strategies

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These best cryptocurrency investing strategies will help you reduce your risk whether you’re a beginner or a pro.

Investors are attempting to determine how to add alternative currency, such as Bitcoin, to their existing portfolio of traditional investments. Despite the fact that the cryptocurrency market has been in decline since the start of the year, some crypto assets have historically had strong returns.

For instance, since its launch, Bitcoin has significantly outperformed the general stock market. However, investors should be aware that Bitcoin and other cryptocurrencies are speculative investments with specific risks. When it comes down to it, you should have a backup plan when considering digital assets, just like you do with stocks and bonds, just like you would with any other investment.

Here are seven best cryptocurrency investing strategies to keep in mind while you manage your cryptocurrency holdings.

1. Choose the right mix of storage

Safe storage is the most important factor to consider while managing your crypto. You can store your bitcoin in a few different ways to keep it secure. Both hot and cold storage is used to hold digital assets. Cold refers to an offline wallet that is often kept on a hard drive, whereas hot refers to what is known as an online digital wallet.

To keep hackers out, experts advise keeping the majority of your cryptocurrency in a cold wallet. However, it is practical to keep some cryptocurrency in a hot wallet so you can rapidly enter and exit transactions.

Yubo Ruan, CEO and founder of Parallel Finance, a decentralized lending and staking protocol on Polkadot, advises keeping about 80% of long-term savings in a cold wallet. Short-term transactions can be made using the hot wallet.

2. Prioritize liquidity

When choosing how and what to invest in the cryptocurrency market, liquidity is crucial. The market’s most liquid cryptocurrency is bitcoin. The term “liquidity” describes how quickly an asset may be changed into cash without losing value.

Because it can determine whether traders can enter or exit a trade at the desired value, the concept of liquidity is crucial. The cryptocurrency market is dynamic, thus traders must be able to enter and exit positions rapidly. This means that there must be both supply and demand for the cryptocurrency in order for buyers to get the best deal and sellers to make a profit.

According to Tally Greenberg, head of business development at Allnodes, a cryptocurrency hosting company, “you don’t want to buy an asset that maybe has amazing potential but is not being traded and it’s just stagnating, so you’re sitting on it and you’re at the mercy of the market.” Trading volume, or how much cryptocurrency has been purchased and sold, as well as investors’ general interest in the asset, might be useful in determining liquidity.

3. Harness volatility

Cryptocurrency is infamous for its drops as well as its rallies. Although its volatility can be advantageous for traders who profit from these price fluctuations, it can be challenging to manage for long-term investors. Since cryptocurrencies are still a new asset, there is still a lot of hype and speculative activity surrounding them, which frequently causes increased volatility.

Large price swings are often regarded as a risk, yet everyday volatility is common in the cryptocurrency market and can present a business opportunity.

According to Greenberg, volatility is advantageous for cryptocurrency trading, but it’s best to understand your risk tolerance as an investor before investing. She adds that it’s crucial to closely monitor market activity by keeping up with news, blockchain updates, and historical charts relevant to your trading.

4. Invest what you can afford

You should only invest money you can afford to lose in the cryptocurrency market, just like you would with more conventional investments. You cannot afford the risk of investing in a cryptocurrency if you are unable to handle the potential total loss of your money.

According to Ruan, your present risk profile and income will determine your level of risk tolerance in the cryptocurrency market. “A person who is new to cryptocurrency should think about allocating around 5% of their income to the crypto market, a cryptocurrency enthusiast should aim for allocating around 10% of their income to cryptocurrency, and a DeFi expert or trader should probably think about allocating 20% or more to cryptocurrency,” he advises.

5. Take your gains often

Experts advise cryptocurrency market participants to routinely take profits. Cryptocurrency investors frequently confront the dilemma that a cryptocurrency’s price could drop or surge when it’s time to take profits, but it’s preferable to have a reliable technique for doing so.

According to Greenberg, “a lot of folks just buy and hold for an eternity, and they’re at the mercy of news, memes, and celebrity tweets.” Decide on your entry and exit locations for trades and have a clear justification and objectives for trading cryptocurrency in the first place.

6. Diversify

In the world of cryptocurrency, it is not a good idea to put all of your eggs in one basket. Having your crypto portfolio invested in a number of coins and crypto projects is a better method to reduce risk in cryptocurrency investing.

According to Greenberg, diversification among various digital assets connected to cryptocurrencies and blockchain, such as the internet of things, non-fungible tokens, and DeFi initiatives, is crucial. She claims that since bitcoin exchanges don’t always carry the same assets, you can even diversify by using other exchanges.

Crypto investors can allocate to both comparatively steady and speculative assets thanks to diversification.

7. Use dollar-cost averaging

An approach known as “dollar-cost averaging” entails investing a set sum of money over time rather than all at once. Investors might profit from market fluctuations in this way since, according to experts, it is impossible to forecast how crypto assets will perform in the future given their volatility.

Dollar-cost-averaging allows you to make the same investment during bull and bear markets. Investors can acquire cryptocurrency at a lower cost by purchasing it when the market is down, and employing dollar-cost averaging can temper their reactions to enthusiasm.

Dollar-cost averaging can help you stick to your long-term investing plan since it takes the emotion out of any new market positions, according to Ruan.