Crypto Investment Strategies: Finding Your Golden Ticket

Investing in cryptocurrencies is risky due to the potential for high losses from security breaches. However, it is possible to make a lot of money by investing in them.

Cryptocurrencies are incredibly volatile and not for all investors. Bitcoin and Ethereum are in a league of their own as the two best cryptocurrencies to buy.

Bitcoin is the most widely used cryptocurrency and has become the most popular and valuable cryptocurrency since its inception in 2009. It was created by an individual or perhaps a group operating under the pseudonym Satoshi Nakamoto. Its blockchain-based, decentralized transaction verification and public ledger system revolutionized the world of digital security.

Ethereum was one of the first altcoins and is the most valuable crypto besides bitcoin. The network's native cryptocurrency is called Ether. Ethereum's blockchain was the first to introduce smart contracts, code that runs decentralized applications.

Other good investment options include Binance Coin, Solana, Cardano, and Toncoin.

Bitcoin's value and volatility

Bitcoins Value and Volatility

Bitcoin is a good investment if you want direct exposure to the demand for digital currency. However, it is a very volatile asset. Its value is derived from its decentralised network, limited supply, and lack of a central bank to control that supply. As a result, its price is influenced by supply and demand, investor and user sentiments, government regulations, and media hype.

Supply and Demand

The price of Bitcoin, like most commodities, is influenced by supply and demand. As an asset quickly adopted by investors and traders, speculation about price movements plays a critical role in Bitcoin's value at any given moment. As the most popular cryptocurrency, Bitcoin demand increases because supply is becoming more limited. Long-term, wealthier investors hold their Bitcoins, preventing those with fewer assets from gaining exposure.

Investor Actions

Bitcoin volatility is also driven by investors. It is unclear how investors with large holdings would liquidate their positions without affecting Bitcoin's market price. If these investors were to begin selling their Bitcoin holdings suddenly, prices would plummet as other investors panicked and followed suit.

Sentiment

Fear and greed are two primary drivers behind Bitcoin's volatility and prices. Because of its well-known volatility, investors fear that they will miss out on big upswings or fall victim to large downswings. This causes many of them to panic sell or buy, influencing demand and, therefore, prices.

Media Hype

Media outlets, influencers, and industry moguls create investor concerns, leading to price fluctuations. It is not uncommon to hear an opinion from someone heavily invested in Bitcoin, stating that the currency will soon be worth hundreds of thousands. Others hype newly invented cryptocurrencies to try and take away market share from Bitcoin. However, most of this media attention and publicity serves to influence Bitcoin's price to benefit the people who hold large numbers of coins.

Government Regulations

Rumours about regulations tend to impact Bitcoin's price in the short term. For example, in 2021, China's government and central bank announced that all cryptocurrency transactions or facilitation were illegal. This resulted in a massive shutdown of cryptocurrency mining farms in the country, and Bitcoin's price dropped through August 2021 to around $29,700 as miners scrambled to relocate.

Bitcoin's Volatility Compared to Other Assets

To put Bitcoin's volatility into perspective, the volatility of gold averages around 1.2%, while other major currencies average between 0.5% and 1.0%.

Ethereum's blockchain and its use cases

Ethereum is a decentralised blockchain-based software that enables smart contracts and applications to run smoothly, without any third-party interference. It is also a programming language that helps developers create distributed applications. Its native cryptocurrency, Ether, is the second-largest in the world.

Ethereum's permissionless blockchain allows for the creation and development of applications without oversight from a central authority, creating a space for experimentation. The most common ETH-based cryptocurrencies are built on the ERC-20 token standard.

• Decentralised Autonomous Organisations (DAOs): Blockchain-based organisations that operate without central authorities. They are governed by rules coded in software, and administrative decisions are voted on by a community of stakeholders.
• Initial Coin Offerings (ICOs): Token sales that function similarly to a traditional Initial Public Offering. Ethereum-enabled startup fundraising played a huge role in the growth of blockchain and crypto throughout 2017 and 2018.
• Non-Fungible Tokens (NFTs): Unique, indivisible, and scarce digital assets that are useful in gaming, art, and ensuring the provenance of luxury goods. NFTs can be sold anywhere, and their owners have access to a global market.
• Decentralised Finance (DeFi): DeFi platforms are reinventing traditional financial products and services, adding decentralised, programmable, and censorship-resistant features to create new financial products.
• Smart Contracts: Self-executing contracts recorded on the Ethereum blockchain that facilitate, verify, and enforce transactions.
• Identity and Self-Sovereign Identity (SSI): SSI gives users control over their digital identity, which can be stored on the Ethereum blockchain and shared with chosen individuals.
• Supply Chain Management and Traceability: The Ethereum blockchain improves supply chain management by providing a transparent, secure, and efficient ledger that is difficult to tamper with, making it almost impossible for fake goods to enter the supply chain.
• Energy and Carbon Emissions Tracking: Ethereum can track energy consumption and carbon emissions by connecting to external data sources via blockchain oracles.
• Healthcare Data Management: The Ethereum blockchain safeguards sensitive health records by minimising access to professionals, patients, and researchers.
• Governance and DAOs: Smart contracts run DAOs on the blockchain, and the rules guiding the organisation cannot be changed as they are embedded in the code.
• Cross-Border Payments and Remittances: Ethereum's native token, Ether, can be used to send money across different countries, eliminating the problems of expense, slow transaction processes, and currency differences.

Crypto's regulatory challenges

Cryptos Regulatory Challenges

The regulatory landscape for cryptocurrencies is complex and uncertain, with jurisdictional overlap and friction among regulators in different countries and even within the same country. For example, in the US, the SEC treats digital assets as securities, the CFTC calls them commodities, and the Treasury views them as currencies. The IRS has its own view, treating cryptocurrencies as property for tax purposes. This lack of consistency creates challenges for both investors and companies operating in the crypto space.

Another regulatory challenge is the accurate classification of cryptocurrencies. By their very nature, cryptocurrencies are freewheeling and not easily defined by existing asset categories. Some countries have tried to address this issue by creating their own definitions and regulations for cryptocurrencies. For instance, Japan officially recognised cryptocurrencies as property in its Payments and Services Act in 2017, while the EU introduced the Markets in Crypto-Assets Regulation (MiCA) in 2023. However, the US and other countries are still working on establishing clear regulations.

The rapid growth and evolving nature of the crypto sector also present challenges for regulators. The Financial Stability Board (FSB) has emphasised the need for a thorough analysis of the crypto economy to effectively govern this trend and create suitable regulatory frameworks. Over-regulation is a concern, as it could stifle innovation and impede the growth of the crypto industry. At the same time, under-regulation could lead to increased fraud and scams, as well as money laundering and terrorist financing. Striking the right balance between fostering industry growth and protecting investors is a delicate task for regulators.

The global nature of cryptocurrencies further complicates regulation. Crypto assets can be traded across borders, so international cooperation and coordination among regulators are necessary. However, as of March 2024, there had been no significant international discussions or agreements on how to regulate cryptocurrencies. The EU, which has been relatively crypto-friendly, may have an advantage in this regard due to its control over a 28-member bloc.

Overall, the regulatory challenges facing the crypto space are complex and multifaceted. While some countries have taken steps towards creating a clear regulatory framework, the lack of consistency and international cooperation creates uncertainty for investors and companies alike.

Crypto trading strategies

There are several types of crypto trading strategies, each with its own pros and cons. Here are some of the most common approaches:

• Long-term crypto trading: This strategy involves buying and holding cryptocurrency for years or even decades. Long-term traders ignore the short-term booms and busts of the crypto market and focus on the potential for prices to increase over time. This approach can be beneficial as it allows investors to avoid the high volatility and risks associated with short-term trading. However, it may also result in missing out on potential gains from short-term price fluctuations.
• Crypto swing trading: Swing traders aim to capitalize on medium-term crypto market trends and momentum. They typically buy and hold crypto for days or weeks, looking for larger price movements than day traders. This strategy can provide the potential for higher gains compared to day trading but also comes with increased risks due to the longer holding periods.
• Crypto day trading: Day traders buy and sell crypto within the same day, taking advantage of intraday price fluctuations. This strategy can be profitable for those who can accurately time the market, but it also carries the risk of losing money if trades don't go as planned. Day trading also requires a significant time commitment and a thorough understanding of the market and technical analysis.
• Crypto scalp trading: Scalp traders often buy and sell crypto multiple times a day, focusing on small gains and aiming to accumulate a net profit over time. This strategy requires a high level of discipline and the ability to make quick decisions. While scalp trading can be lucrative, it can also be highly stressful and may not be suitable for those who are new to crypto trading.

When considering a crypto trading strategy, it is essential to assess your risk tolerance, investment goals, and the amount of time you can dedicate to trading. It is also crucial to remember that the crypto market is highly volatile and unpredictable, and there is always the risk of losing money. Therefore, it is generally recommended to only invest what you can afford to lose and to diversify your portfolio to mitigate risks.

Additionally, before diving into crypto trading, it is important to educate yourself about the market, understand the underlying technology, and conduct thorough research on the projects you are considering investing in. This includes examining white papers, analysing tokenomics, evaluating the team behind the project, and assessing the real-world use cases and adoption potential of the cryptocurrency.

Crypto's environmental impact

Cryptos Environmental Impact

Cryptocurrency has a large environmental impact. It requires energy, equipment, internet, and a global networking infrastructure to be useful. Some networks use as much energy as small countries to maintain a blockchain. Crypto mining requires large amounts of energy—more than is used by some small countries—to perform the work associated with it. The largest country for Bitcoin mining is the United States, which accounts for more than one-third of Bitcoin mining activities.

According to a White House report, cryptocurrency mining accounts for 140 million metric tons of CO2 per year released into the atmosphere, or 0.3% of all global greenhouse gas emissions. This amount is greater than the emissions produced by many individual countries, including Argentina and the Netherlands. Crypto mining used to be possible with a home computer setup, but now requires massive computers with cooling systems and motherboards. This takes enormous amounts of energy, typically procured from burning fossil fuels.

The competitive nature of blockchain mining is also an issue. If 1,000 miners compete and only one wins a reward, the resources invested by the 999 miners who lost are wasted. Because speed is critical to winning the blockchain race, crypto miners are utilizing the most readily available energy sources, including paying to revitalise dying fossil fuel plants to get electricity faster.

Cryptocurrency mining also generates significant electronic waste, as mining hardware quickly becomes obsolete. This is especially true for Application-Specific Integrated Circuit (ASIC) miners, which are specialized machines designed for mining the most popular cryptocurrencies. According to Digiconomist, the Bitcoin network generated about 10.52 kilotons (annualized) of e-waste as of August 2024.

Cryptocurrency mining can also cause local noise and water impacts, air and water pollution, and other local impacts on communities living near mining facilities.

Positive Environmental Impacts of Crypto

Despite the negative environmental impacts of crypto, there are some potential positive impacts as well. Distributed Ledger Technologies (DLT) may play a role in enhancing market infrastructure for environmental markets like carbon credit markets. Additionally, some cryptocurrencies and blockchain projects advertise environmental, social, and governance best practices, although they are not as popular as they are considered to have less earning potential.

Furthermore, crypto bankruptcies mean less carbon emissions are produced, and the recent crypto crash has led to more attention being placed on the negative environmental impacts of crypto and the development of more sustainable mining strategies. For example, following the release of the White House report in September 2024, Ethereum, the largest blockchain behind Bitcoin, switched to a more eco-friendly mining strategy, which could lower its carbon emissions by 99% in the next few years. There are also up-and-coming cryptos, like SolarCoin, that rely on renewable energy to power their mining.

Frequently asked questions