Crypto investing strategy for beginners
Investing in crypto can be risky for an aggressive trader or an inflexible HODLer. This article features the top 5 crypto investment strategies that may help you manage the volatility.
Cryptocurrencies have featured in global economic headlines for a long time. Now, it has become a source of passive income and capital gain for many. However, it has also remained a highly risky and volatile market, meaning lesser financial security.
Besides, the uncertain digital world also goes through deadly crypto winters every once in a while. Currently, it is also experiencing a detrimental meltdown which started in the beginning of this year that has resulted in a loss of over $2 trillion.
Starting in this market environment without a plan would be dicey. Here we've laid out a simple crypto investment strategy for beginners and have discussed the 5 most important tactics you must know before entering the market.
5 unavoidable crypto investment strategies
Here are the top 5 crypto investing strategies that you should never avoid!
- Tackle the market volatility The foremost part of your crypto investment strategy should be to keep risks minimal. That's why, as a beginner, you should have a plan to tackle market volatility. Firstly, learning the price cycles and reading the short-term and long-term trends to familiarise yourself with market behaviour.
Secondly, neither be an aggressive trader nor an inflexible HODLer. Instead, you must find a middle ground to ensure you don't miss out on earning opportunities and have the perseverance to endure market lows.
- Diversify your portfolio Diversification of a portfolio is not only for traditional assets, but it's as crucial for digital ones. The age-old saying "don't put all your eggs in one basket" also applies to the crypto market. That's why you should not stick to only one coin, rather regularly look for innovative and high-potential projects.
However, you should not go berserk with diversification. Ideally, investing in a basket of maximum 5 to 10 crypto currencies is beneficial as opposed to opting for a coin. Don't fall for the hype; instead, study their roadmap and consider the market cap.
- Know your risk tolerance Another critical part of the crypto investment strategy is to keep your investments within your risk tolerance range. The primary rule of investment is to not invest more than your immunity to losses. That's why you shouldn't invest your life savings, borrowed money, or health and emergency funds in any digital asset.
Since the crypto market is highly unpredictable and risky, investing more than your risk tolerance level would be a gamble. Therefore, starting with a modest amount you can bear to lose is a smart choice. Ideally, you should not invest more than 5 to 10% of your total portfolio.
- Utilise cost averaging Cost averaging is the most popular crypto investment strategy. Whether you are a trader or a HODLer, you can use cost averaging to make better better risk adjusted returns in the long term. Cost averaging comprises of investing smaller amounts at regular intervals. Through this, you can mitigate the risk of unpredictable losses by investing when the market is up (at a premium) and when it is down (at a premium)- resulting in an average cost price with lower volatility.
Instead of making a single lump sum investment, you can divide your entire year's investment into small amounts. Then you can set a time for investing it, whether monthly, weekly, or daily. This will allow you to invest at the time of both upward and downward trends, which will reduce losses.
- Opt for safe storage Safe storage is a high priority for crypto investments. You will find crypto wallets or storage of two types: hot or cold. Hot ones are better for day-to-day trading, whereas cold ones work best for long-term investments. This is because hot storages have internet access all the time to make trades instantly.
In comparison, cold wallets are hardware devices on which you can store your coins remotely with limited internet usage. This makes cold wallets much more secure than hot wallets. However, you should use both as hot storage will come in handy in trading, and cold ones will keep your long-term investments safe.
Cryptocurrencies prices are spiralling downwards as the market goes through a bearish trend. In this situation, you would be better off with a strategy than without one. The key to investing in crypto is a balanced approach and using safe storage for your digital assets. Consider cost averaging and diversification to help you achieve less volatile risk adjusted returns. You should always be aware of market trends and risk tolerance to avoid losses due to short term market timing.
Author: Wasay Ali
I'm a content writer with adequate SEO knowledge. My hobby is to exercise, read and write. My writing experience currently expands to 2 years and I’ve worked on multiple niches, including finance. My versatility and research skills make me the best at what I do: content & SEO writing. I love writing because it pitches in and helps me learn new things daily.