Banking & Finance

9 Tips for Your Crypto Investment Strategy

Cryptocurrency has become one of the top investments for countless people. It’s already created generational wealth for many people, which means many are jumping into action and buying. 

On top of that, it’s also given people worldwide a way to get involved in financial markets. Believe it or not, there are now an estimated 221 million cryptocurrency users.

The crypto world can be intimidating, so many people are hesitant to get started with investing. Keep reading to learn nine tips that will make the process easier and help you create a crypto investment strategy that gets results.

1. Learn About Cryptocurrency Technology

There’s more to most cryptocurrencies than the price. While it is true that some coins that exist on blockchains, like Etherium and Polygon, don’t offer much and don’t have any utility, the same thing isn’t true for the major players.

The biggest cryptocurrencies in the space offer real value for people who use the technology. Ethereum, for instance, offers a virtual machine that allows developers to create their own coins and utilities on the blockchain. It acts as a low-powered world computer.

On the other hand, Bitcoin is thought of as a store of value and a new way for people to make transactions.

Before investing, you need to understand these things because it will help you figure out which technology is worth investing in. If you pick a new cryptocurrency to make a bet on and it doesn’t offer anything of value, the chances are good that you’ll waste your money and not get any value in return.

2. Learn the Trading Strategies

There are several ways to make money trading crypto. However, some people jump in without learning all their options. Below are three of the most common ways to make money trading.

Buy-and-Hold Strategy

A buy-and-hold strategy is great for people with a long-term vision for cryptocurrency. They believe their holdings will inevitably go up over time as more people start investing in crypto. Because of that, they buy with the intention of holding for a long time.

Some people make trades expecting to hold for years.

Of course, there are a couple of ways to go about this. The most common strategy people use is to invest over time to gain exposure to several price points. You don’t have to worry as much about sudden drops in this situation since you’re buying the high and low points.

You can also invest a lot of money at once and be done with it. This is great if you aren’t worried about volatility and don’t want to keep looking at price charts.

Medium-Term Trades

Even if you believe your crypto investment will go up in the long term, that doesn’t mean you can’t make a profit today. The price of crypto is in flux at all times. If you look at weekly and monthly charts, you’ll probably find periods where you can make a profit with smart trades.

The point of medium-term trades is to buy at low periods and sell your earnings once a cryptocurrency coin goes up again. You’ll need to stay patient on these trades since you may not immediately make a profit. On top of that, you can lose money short-term if a cryptocurrency goes down further after you buy.

You’ll probably make trades that last weeks or months in this situation, so you’ll need to be patient if you go this route.

Short-Term Trades

Short-term trades are for people who want to take advantage of the small fluctuations in price that happen during the day. The price can change for larger market cap coins by hundreds of dollars daily. You can trade smaller amounts and still make a decent profit in this case.

The price fluctuations may not be as big for smaller projects. However, you can still make good money if you make larger trades or trade more frequently.

The trades you make using this strategy will probably be hour-long or day-long trades. You may need to get more technical with these trades and monitor charts to spot technical signals to make smarter decisions.

3. Consider Alternate Earning Strategies

You don’t only have trading to consider when making a profit on your crypto investment. There are other options that let you do more with the cryptocurrency you own. Here are a few ways to put your holdings to use.

Crypto Staking

Crypto staking is something you can do when you buy a cryptocurrency on a proof of stake network. These networks work differently than the proof of work models you’re probably familiar with.

Instead of investing in expensive mining rigs, proof-of-stake currency owners can stake their holdings on staking servers. These are the servers that validate transactions. The more currency a staking server has, the bigger chance there is of getting transactions to validate.

The people staking on these servers then get to take a cut of the transaction fee. As a result, you can earn passive income by staking your cryptocurrency.

Play-to-Earn

Traditional technology and currency aren’t the only cryptocurrencies you can buy anymore. Many companies now invest in games that pay people to play.

You can now find games in many genres that have their own cryptocurrency. You can get started by purchasing enough cryptocurrency to buy your initial game items and play the game to get further along.

You can then sell your winnings or keep them to advance further in the game. As a result, you can invest some money in a game’s currency and make money from playing.

Savings Account

With the increasing number of people investing in crypto, there’s a growing need for safe places to store holdings. People don’t want to keep their investments in trading exchanges. They’re more familiar with putting them in savings accounts and earning on what they have.

That led to the rise of crypto banks. They work similarly to regular banks because they offer a place to hold money and offer loans to people looking to borrow. You get paid interest on what you hold there because the crypto bank charges higher rates to people borrowing.

You can take advantage of this and earn on your holdings because of this. If you want to stay safe, look for websites that offer reasonable rates. You’re more likely to work with a reputable company when you go this route.

4. Understand the Trading Fees

You can’t trade cryptocurrency for free. There are fees for every transaction you make, which means you can end up losing a lot of money if you make a ton of small transactions that don’t produce much profit.

You’ll need to look at the platform fees if you trade on a crypto trading platform. These fees can be anything from a few cents to a percentage of the trade you make. In more extreme cases, it will be a combination of the two.

Things get more complex when you move to a blockchain and trade on defi. You’ll see the true cost of transactions in this case. If you use a trading platform, you may end up with even larger fees than you don’t expect because the trades will require several transactions.

No matter which way you decide to trade, figure out how much you’ll spend on fees. Otherwise, you’ll make losing trades and will never make a profit.

5. Learn About Taxes

Taxes weren’t thought much about in the past when it came to crypto. The government didn’t know what to do about it, so people developed their own ways of doing things. That’s no longer the case today.

You need to pay money on your profit when you invest in cryptocurrency. The problem is that your tax rules can change a lot based on where you live.

Make sure you learn about your tax obligations when you trade cryptocurrency. It makes sense to reach out to a tax professional who has experience dealing with crypto issues. They’ll know what to look for with your holdings and can help you figure out how much money you owe the government.

The last thing you want to do is dismiss dealing with taxes since you don’t hold your local currency and end up owing a ton of money in the future that you can’t pay.

6. Try to Diversify

There are a few big cryptocurrencies that will likely stick around. Coins like Bitcoin and Ethereum are proven, so they’re usually seen as the best investments.

However, that doesn’t mean you should stick with only those cryptocurrencies. There are now hundreds of cryptocurrencies in the world, with many offering unique features that others don’t have. You’re missing a lot of opportunities if you ignore those investments.

Make sure you fully explore the crypto ecosystem to see everything it has to offer. You may be able to find more risky plays that pay off in the long run and make more cash than you would by sticking with the safe options.

Of course, try not to go overboard and invest everything in risky plays. Diversify your risk as much as possible to ensure you don’t lose your money.

7. Anticipate Drops in Price

There’s no getting around the fact that cryptocurrency will probably drop lower in price in the future. It happens with all markets, but many people panic about crypto because it isn’t as well-known as other markets.

The problem comes when people sell their holdings in established coins. The chances are good that the price will recover over time. All you’ll do is cement your losses when you do this.

If you can afford to hold on to coins that dropped in price, try to avoid selling. You’ll probably recover most or all of your holdings if you wait long enough.

If you can’t afford for prices to go too low, keep your holdings on an exchange and set a stop loss. Doing this will automatically sell your holdings when the price reaches a certain point. This will help you manage losses and still withdraw your money if you can’t afford to lose too much.

8. Follow the News

Being informed is one of the best ways to make decisions in cryptocurrency. The space moves fast at times, which means you may fall behind and miss important news that will impact your investing decisions.

Take the announcement of a new feature for a cryptocurrency. New features can increase buying pressure on a coin, which means it may increase in price by a lot in a short time.

You’ll miss that opportunity if you read the news too late. If you can take advantage of those opportunities early, you can make a lot of profit quickly.

9. Learn With to Withdraw Your Profit

Yes, there are more ways than ever to spend your cryptocurrency. You have debit cards that let you spend what you own anywhere. You also have Bitcoin ATMs that allow you to withdraw your holdings for cash.

However, you put yourself at more risk if you hold all your investments in cryptocurrency. You never know when something unexpected will happen that cause you to lose your holdings. Make sure you take profit occasionally to cement your gains and avoid market crashes.

Take Time to Refine Your Crypto Investment Strategy

The last thing you should do when entering a new financial market is to start throwing your money around without a plan. All you’ll do in this situation is put your cash at risk and likely lose all your money.

You need to do your research and create a crypto investment strategy that minimizes your risk and increases your chance of profit. Remember the tips above when making crypto investments to maximize your chance of success.

Head back to the blog to find more posts on crypto and investing that will help you grow your wealth.

Staff Writer

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