Cryptocurrency Investment Strategies

 

Just like any other type of investment, there are different strategies to cryptocurrency investment. Some traders prefer rapid buying, selling, and trading of different currencies, taking advantage of the volatility of the relative values of different cryptocurrencies to make a profit. Others prefer a more long-term, hands-off approach to cryptocurrency, buying coins and then not selling or trading them away for months or years. In this guide, we’ll talk about how each of these strategies can be applied to the cryptocurrency market and where to get more information for each strategy.
 

Day Trading

Day trading

Cryptocurrencies are an extremely volatile market. In July 2010, the value of Bitcoin grew 900% in the space of five days . On December 22, 2017, Bitcoin dropped in 23% in value within 24 hours. These dramatic ups and downs generally follow the public’s perception of Bitcoin with announcements of potential regulation of cryptocurrency being one of the most common causes of a drop.  However, this volatility gives potential investors the opportunity to make some big profits on the cryptocurrency market.

To effectively day trade in cryptocurrencies, investors need to be able to keep track of the relative values of different cryptocurrencies and how these values are changing over time.  One useful resource for this is coinmarketcap.com, which provides price history for a variety of different cryptocurrencies. Research is also important. By looking into upcoming events for various cryptocurrencies, it’s often possible to predict a rise or fall (i.e. getting added to a new cryptocurrency exchange often raises a cryptocurrency’s value). To trade, you also need a method of converting from one cryptocurrency to another. After purchasing cryptocurrency (see our guide to learn how), consider a wallet that stores multiple types of cryptocurrency and the ability to trade between them, like Binance.com. Such wallets often also have real-time price exchange rates particular to their service, letting you know exactly what amount of cryptocurrency you can get for your trade.

Day trading cryptocurrencies has the potential for large returns (enough small increases in value add up over time) but it is a lot of work and carries its own risks. A bad prediction on the direction a cryptocurrency’s price is heading could cause a large loss on a significant investment.

 

Long-Term Holding

For those who are more risk-averse and patient, long-term holding may be a better option for cryptocurrency investment. Depending on your risk tolerance and willingness to get your hands dirty, there are even various methods of investing in making more of a long-term investment in cryptocurrency. For those preferring a less risky and more hands-off approach, looking into investing in the “big” cryptocurrencies may net benefits in the long run. For those willing to dig more into the space and take some losses with your wins, the vast number of new cryptocurrencies being created presents opportunities for being an early adopter of the next up-and-coming cryptocurrencies.
 

The Big Ones

Bitcoin has been around for almost a decade now. It started out being worthless. ​​In fact in March 2010 (over a year after its launch), a Bitcoin user tried to auction off 10,000 Bitcoin for about 50 USD but didn’t have any takers. A few months later, another user used 10,000 Bitcoin to buy two pizzas (by sending them to another Bitcoin user who then placed the order using credit card). At the time of writing, 10,000 Bitcoin would be worth almost 93 million USD or about 8 million pizzas. Early Bitcoin users might have invested a few dollars worth of money or computer processing (through cryptocurrency mining ) and are now millionaires. That’s a pretty good return on investment.

Despite some instability, the value of the “big” cryptocurrencies like Bitcoin and Ethereum have generally been on the rise. As acceptance and adoption of cryptocurrency and blockchain technology increases, the values of these very visible and established cryptocurrencies is likely to continue to increase. While it is possible that the bottom may fall out of the cryptocurrency market, established cryptocurrencies like Bitcoin and Ethereum are worth a look for the potential cryptocurrency investor interested in long-term holding.
 

New Cryptocurrencies

New Cryptocurrencies

In general, most cryptocurrencies are worth little or nothing when they are first starting off (though ICOs try to change this by building early support). Until a cryptocurrency is demonstrated to not be a scam and to offer something of value to potential users, its adoption and user base are limited. However, successful cryptocurrencies can increase several hundred times in value in the period between launch and wide adoption. This presents an opportunity to long-term investors willing to take some risk with their investments.

New cryptocurrencies are being launched almost every day and numerous sites exist rating and analyzing the various new offerings. Since many of these cryptocurrencies are ICOs based on smart contract platforms like Ethereum and Cardano, an Ethereum or Cardano owner is well-positioned to take advantage of these new ICOs (see our guide for more information on investing in ICOs). With some research, an investor can get in “on the ground floor” of various cryptocurrencies and purchase them while they are cheap (a one dollar investment in Bitcoin at its first valuation of $0.003 would be worth over 3 million today) and in the ICO stages. While some will not take off, a researched and carefully chosen portfolio can earn an investor a good return in the long run.