Crypto Investment Strategies: A Beginner's Guide To Success

Crypto is a volatile market, and not for the faint-hearted. It's a relatively new asset class, with origins dating back to 2009, and extreme volatility is to be expected. If you're not willing to endure violent swings, you shouldn't invest in cryptocurrencies.

However, crypto is having a moment. In 2024, the crypto market was worth upwards of $2.5 trillion. It's an emerging area with more than 9,000 crypto projects in existence as of March 2024.

Bitcoin and Ethereum are the two best-established cryptocurrencies to buy, with robust foundations and widespread adoption. But there are thousands of coins to choose from, each with its own dynamics.

If you're thinking of investing in crypto, it's important to do your research and understand the risks. Decide if crypto fits your risk tolerance before diving in.

How to choose the best crypto to invest in

Do Your Research

Before investing in any cryptocurrency, it is important to conduct thorough research. This includes understanding the purpose and unique features of each crypto coin or token, as well as its use cases and the problem it aims to solve. Beyond that, it is crucial to assess the credibility and track record of the development team behind the project.

Assess Market Capitalization and Liquidity

Market capitalization, or market cap, is a key factor in evaluating a cryptocurrency. It represents the total value of all the coins in circulation for a particular cryptocurrency. Tokens listed on major exchanges generally offer better liquidity, attracting larger investors and a broader audience, which can positively impact the potential buyer base.

Consider Risk Tolerance and Investment Goals

Investing in cryptocurrencies carries a high level of risk due to their extreme volatility. It is essential to determine your risk tolerance and ensure that crypto fits within your investment goals and strategy. Decide whether you are comfortable with the potential for significant gains alongside the possibility of substantial losses.

Analyze Historical Performance and Trends

While past performance does not guarantee future results, analyzing the historical price movements and trends of a cryptocurrency can provide valuable insights. Look at charts, identify key support and resistance levels, and consider the overall trajectory of the coin's value over time.

Evaluate the Blockchain and Technology

The underlying blockchain technology and its capabilities are crucial factors in choosing a crypto investment. Assess the blockchain's scalability, security, and ability to facilitate decentralized applications (dApps), smart contracts, or other unique features. A strong development team that actively works on upgrades and improvements is also a positive sign.

Diversify Your Portfolio

Diversification is a risk management strategy that can be applied to crypto investing. Instead of putting all your funds into one cryptocurrency, consider spreading your investments across multiple coins with different use cases and levels of market capitalization. This approach can help mitigate the impact of price fluctuations in any single crypto asset.

Stay Informed and Monitor Your Investments

The cryptocurrency market is highly dynamic and constantly evolving. Stay up to date with the latest news, regulatory changes, and developments in the industry. Regularly monitor the performance of your crypto investments and be prepared to make adjustments to your portfolio as needed.

Don't Invest More Than You Can Afford to Lose

Crypto investing carries significant risks, and it is essential to remember that the value of your investments can fluctuate drastically. Only invest an amount that you are comfortable losing, as the potential for losses is always present in this volatile market.

Examples of Top Cryptocurrencies

• Bitcoin (BTC) - The original cryptocurrency and the largest by market capitalization, known for its strong liquidity and mainstream acceptance.
• Ethereum (ETH) - A leading altcoin with smart contract functionality, widely used for decentralized applications and non-fungible tokens (NFTs).
• Binance Coin (BNB) - The native cryptocurrency of the Binance exchange, offering various utilities and applications within its ecosystem.
• Solana (SOL) - Known for its fast and cheap transactions, Solana's blockchain supports dApps, smart contracts, and NFTs.
• XRP (Ripple) - A global payments network aiming to facilitate faster, cheaper, and more transparent transactions than traditional systems.
• Dogecoin (DOGE) - A meme coin that gained popularity and support from high-profile individuals, despite being created as a parody of Bitcoin.

How to buy cryptocurrency

The first step in investing in cryptocurrencies is to buy some for yourself! Here is a step-by-step guide on how to buy cryptocurrency.

Step 1: Research Different Cryptocurrencies

Before buying any cryptocurrency, it is important to do your research. Cryptocurrencies are incredibly volatile and risky, so you should understand the different coins available and their potential use cases, as well as their risks and rewards.

Step 2: Choose a Crypto Broker or Exchange

Cryptocurrencies trade on exchanges or through brokers, similar to stocks. Popular cryptocurrency exchanges include Binance, Coinbase, Kraken, and Gemini. Leading crypto brokers include SoFi and Robinhood. Not all exchanges and brokers support the same cryptocurrencies, so choose one that supports the coins you want to buy.

Step 3: Create and Verify Your Account

Once you've chosen a platform, you'll need to create and verify your account. This typically involves providing personal information, such as your name, email address, and sometimes a copy of your photo ID or other documents. You will also need to agree to the platform's user agreement, which outlines the terms of service.

Step 4: Link a Payment Method

To fund your crypto purchases, you will need to link a payment method to your account. This could be a bank account, credit or debit card, or another type of payment account. Make sure you understand any fees associated with using different payment methods.

Step 5: Place Your Cryptocurrency Order

Once your account is set up and funded, you can place your first cryptocurrency order. Choose the coin you want to buy, enter the amount you want to purchase, and place your buy order. Congratulations, you are now the owner of some cryptocurrency!

Step 6: Store Your Cryptocurrency Securely

Finally, you will need to decide how to store your cryptocurrency. You can choose to store it in a wallet provided by the exchange or broker, or you can transfer it to a private wallet that you control. Private wallets can be software-based or hardware-based and offer varying levels of security. Make sure you understand the risks associated with different storage methods and choose one that suits your needs.

Additional Considerations

• Regulations and Restrictions: Cryptocurrency is subject to regulatory changes and restrictions, which can vary by country and exchange. Make sure you understand the legal and tax implications of buying, selling, and trading cryptocurrencies in your jurisdiction.
• Volatility and Risk: The cryptocurrency market is extremely volatile, and prices can fluctuate wildly. Only invest what you can afford to lose, and consider diversifying your investments to manage risk.
• Fees: Buying, selling, and trading cryptocurrencies may incur fees, which can vary depending on the platform and payment method used. Be sure to understand all the fees associated with your chosen platform before investing.
• Security: Cryptocurrency exchanges and wallets are potential targets for hackers. Research the security measures of any platform or wallet you plan to use, and consider using additional security measures such as two-factor authentication.

Remember, investing in cryptocurrencies is a risky and volatile endeavour. Always do your own research and consult with a financial advisor before investing.

Crypto trading strategies

There are several strategies that can be employed when investing in cryptocurrencies. Here are some of the most common and effective approaches:

• HODL: This strategy involves buying and holding cryptocurrencies for the long term, regardless of short-term market fluctuations. It is based on the belief that the value of cryptocurrencies will increase over time.
• Scalping: Scalpers aim to make small profits by executing multiple trades within a short period, capitalising on minor price changes. Positions are typically held for a very brief time, sometimes just seconds or minutes. The goal is to accumulate numerous small gains that add up to a substantial profit over time.
• Arbitrage: Arbitrage traders look for price differences of the same cryptocurrency on different exchanges. They buy from the lower-priced exchange and sell on the higher-priced one, profiting from the price gap. Arbitrage requires quick action and automation as price differences can be slim and fleeting.
• Day Trading: Day traders buy and sell cryptocurrencies within the same trading day, aiming to exploit short-term price fluctuations for quick profits. This strategy demands constant market monitoring and disciplined risk management.
• High-Frequency Trading (HFT): HFT involves using algorithms to execute trades at extremely high speeds, leveraging minor price discrepancies across various exchanges. HFT traders often employ advanced technology and co-location services to minimise latency and gain a competitive edge.
• Range Trading: Range traders aim to profit from price oscillations within a defined range. They buy at the bottom of the range and sell at the top. This strategy is most effective in low-volatility markets where prices fluctuate within specific levels without significant breakthroughs.
• Moving Average Crossover: This strategy involves using two moving averages: a short-term one (e.g. 20-day) and a long-term one (e.g. 50-day). When the short-term average crosses above the long-term average, it signals a buying opportunity ('golden cross'), and when it crosses below, it indicates a selling opportunity ('death cross').
• Relative Strength Index (RSI): RSI is a technical indicator used to identify momentum, overbought and oversold conditions in the market. It is calculated as a percentage, with lower percentages indicating oversold positions and higher percentages suggesting overbought positions. Traders use RSI to determine whether an asset is potentially overvalued or undervalued.
• Event-Driven Trading: This strategy focuses on capitalising on the media presence of a specific coin or crypto exchange. News coverage can influence cryptocurrency prices, and experienced traders often exploit this dynamic. Traders typically wait for a consolidation pattern before an expected news release and act swiftly once the market breaks out.
• Dollar-Cost Averaging (DCA): DCA is a strategy where investors divide their total investment amount into smaller portions and invest these sums at regular intervals over a predetermined timeline. This approach helps mitigate the impact of market volatility and ensures investors receive more of the currency with their final investment compared to investing a lump sum at once.

These strategies offer a starting point for those looking to enter the crypto market. However, it is important to remember that the cryptocurrency market is highly volatile and unpredictable. Thus, investors should conduct thorough research, assess their risk tolerance, and devise a trading plan that aligns with their goals and personality.

Pros and cons of crypto trading

Pros

• Cryptocurrencies have the potential for enormous gains. For example, if you had invested $5000 in Bitcoin in 2013, that would have risen to $2,500,000 in 2018.
• The potential for high returns.
• The process of transferring funds is straightforward and can be done in real-time.
• It offers a certain level of anonymity as the process of trading and transferring your digital assets does not require personal details.
• It is a good alternative investment for retirement or a kids' trust fund.
• It is not controlled by a central authority like a government or financial institution, meaning it can be traded at any time of the day as long as another user is active.
• It is transparent. The ledger can be verified at any time and transactions are open to public scrutiny.

Cons

• Cryptocurrencies are incredibly volatile and not for all investors.
• Price fluctuation is a significant issue, possibly due to it being relatively new and people tending to mistrust intangible funds.
• The concept of cryptocurrency is very technical, making it challenging to understand.
• There is a risk of theft through hacking as hackers have sophisticated tools that they use to infiltrate cryptocurrency wallets and intercept transactions.
• High energy usage is associated with mining.
• Evolving government regulations.
• Prevalence of scams and fraud.

Crypto wallets and exchanges

Crypto wallets are an essential tool for buying, trading, and selling cryptocurrencies. Crypto wallets are of two types: hot wallets and cold wallets. Hot wallets are always connected to the internet and are more convenient to use, but they are less secure than cold wallets. Cold wallets, on the other hand, are offline and provide better security. Examples of hot wallets include Coinbase Wallet, MetaMask, TrustWallet, Electrum, BlueWallet, Exodus, Crypto.com, and Zengo. Examples of cold wallets include KeepKey, Ledger Nano S Plus, and SafePal.

When choosing a crypto wallet, it is important to consider factors such as security, functionality, cost, supported currencies, accessible interface, and hardware wallet compatibility. It is also crucial to assess your trading frequency, the types of crypto you want to trade, your budget, and the desired functionality of the wallet.

In addition to crypto wallets, crypto exchanges are platforms where you can buy, sell, and trade cryptocurrencies. Examples of popular crypto exchanges include Coinbase, Kraken, Gemini, WeBull, and Robinhood. These exchanges allow you to purchase cryptocurrencies directly and provide a convenient way to invest in crypto assets.

Frequently asked questions