Investing in cryptocurrency is an option available to investors of all sizes and with various goals. It can be used to store value for a long time and provide passive income designed to grow moderately over time. For some, it can also be a risky investment that can provide large payouts if managed correctly.
In this article, we’ll cover some of the strategies that investors can employ to invest in crypto at different risk levels. Regardless of how stable the strategy is, none are completely risk-free, as the value of cryptos changes based on market forces.
Buy and Hold
This is the most common go-to strategy for crypto investors. It’s simple enough; the investor buys and holds the asset, allowing its price and value to change over time. When the long term is taken into account, all cryptocurrencies are growing.
The approach is ideal for investors who prefer not to be concerned with the day-to-day fluctuations in crypto prices. It’s also only available to those who can make an investment and wait a while until they profit from it. Investments such as these work when buying crypto directly and also when investing in ETFs.
Most investors who opt for this approach purchase the most popular and largest cryptocurrencies available – Bitcoin and Ethereum. However, it also works with larger portfolios that include smaller and more niche altcoins. It’s also a strategy employed by many large investors, and it can be used by those for whom cryptocurrencies are only a part of a larger portfolio.
Dollar Cost Averaging
Dollar-cost averaging is another common technique for crypto investors who prefer a low-risk option. The investors put in a fixed amount on a regular schedule, regardless of market fluctuations, and adhere to that plan, regardless of the circumstances. It’s designed to avoid having to follow and predict the markets.
For instance, an investor may allocate $100 towards their crypto investment every week, regardless of how the investment is performing, without withdrawing any of the profits. This will smooth out the purchasing cost over time, as cryptocurrencies are prone to fluctuations in value.
Dollar-cost averaging is an ideal option for beginner investors, as there is no need to learn about cryptocurrencies or follow the markets. The strategy also promotes discipline, a key quality that is also valued in other investment approaches.
Swing Trading
Swing trading is the most risky option compared to the others we mentioned. It involves investors taking advantage of short- to medium-term changes in crypto prices. It’s a strategy for investors able and willing to study market charts and trends. Those skills take time to learn, but resources to do so are widely available.
Instead of buying and holding an asset for years, the investors usually buy and sell within days or weeks at the most. They rely on complex technical analysis to predict which of these assets will be worth buying and selling for profit. The analysis encompasses topics such as moving averages, MACD (Moving Average Convergence/Divergence), and RSI (Relative Strength Index).
Swing trading offers the potential for larger profits, but it also carries significantly more risk than buying and holding. Most investors begin with small amounts and demo accounts and then move on from there if it works out.
Passive Income
There are alternative ways to invest in cryptocurrency beyond buying and selling coins. The most common methods for doing so are crypto mining, yield farming, and staking. These methods enable investors to produce more cryptocurrency without being directly involved in the process.
Crypto mining used to require a lot of expensive equipment and tech-savvy investors. Now that it can be done via a crypto mining app, the process has become more widely accessible. It allows users of the app to jointly utilize its resources while earning rewards simply by having the app.
Staking, on the other hand, involves locking crypto into a blockchain operation network. It’s then used to run and operate such a network, while the investors receive a reward similar to the interest earned from borrowing money. Yield farming is a similar concept used to provide liquidity to decentralized finance structures and earn rewards in return.
Investing in New Altcoins
Investing into new altcoins whose price is going to grow quickly and find new uses is the riskiest way to invest. It can also be the most profitable, as investors who find the right altcoins can quickly multiply their investments.
High volatility presents a risk, as it’s possible that such investments may turn out to be useless or even scams that were hyped for a rug pull, in particular. Moonshot investments are best made by allocating a small amount and being prepared to lose it, as that’s what typically happens in most cases.
To Sum Up
There are many ways to invest in cryptocurrency, ranging from low to high risk and potential reward. These approaches to crypto investing are suited to different kinds of investors at various stages of financial success. It’s also possible for a single investor to try all of them while allocating different amounts to each approach.
Investing in crypto can also be passive, allowing the investors to earn small amounts without being involved with the process at all.