To handle volatility in the crypto markets, successful investors stick to a certain cryptocurrency investment strategy. In this article, 5 different strategies explained.
Are you impressed by the recent volatility of Bitcoin in the cryptocurrency markets? If not, you should be! For example, in 2019, the price went up astonishing 90% from 7K in dollars to a new year ATH of 13K US dollars. Also, the overall sentiment in the crypto markets can change overnight resulting in massive sell-offs. In general, not a market for the weak hearted investor!
To handle these kinds of price swings, investors should have a strong stomach and stick to a certain strategy to be profitable in the end. If you want to join this party it’s very wise to choose the cryptocurrency investment strategy that suits you best. In this article, 5 strategies will be explained which could help you be profitable and successful in the crypto markets.
Cryptocurrency Investment Strategy 1: #HODL
HODL is a very famous slang that goes all the way back to the bull run Bitcoin made in 2013. At that time, the market situation was quite similar and Bitcoin was retracing deeply. The crypto community was very active on Bitcointalk forum, where price action was discussed on a daily basis. A very strong Bitcoin believer(obviously been drinking some whiskey) tried to explain his investment strategy. To summarize his explanation: he was not willing to sell his Bitcoin for fiat currency anytime soon. With his statement, he gained a lot of respect from other traders who copied his investment strategy.
How successful can HODLING be?
As a cryptocurrency investment strategy, HODLING is by far the most profitable strategy. As a matter of fact, the price of Bitcoin was at $600 at the end of 2013. If you bought 1 Bitcoin back then and are still holding it, the profit you made would be astonishing 1800%! No stock trader in the world can get to this kind of result.
Total Cryptocurrency market
But it’s 2019 right now, isn’t it too late to invest in these markets? Maybe it is, but in my personal opinion, I don’t think it’s too late. I think the entire cryptocurrency market is still very small if you compare it with the total stock or gold market. As a matter of fact, these markets have many trillions of US dollars investment capital in it while cryptocurrency is valued at about 300 billion.
Living on Bitcoin
If you want to HODL you must turn in to a Bitcoin believer. To do this, start doing some research on technology. A good example is reading the Bitcoin whitepaper(only 8 A4 documents). Many people have done this like the “Bitcoin family” from Holland. Back in 2017, they sold the house for Bitcoin and have been traveling and living on Bitcoin until nowadays.
|Good to know|
|By ‘HODLING’ investment strategy it’s very wise to secure your crypto safely. I wouldn’t advise you to leave your cryptocurrency on an exchange. You don’t have control over your private keys and can be exposed to hacks. A good solution is to store your Bitcoin offline by using a hardware wallet like Nano ledger offers.|
Cryptocurrency Investment Strategy 2: #BTFD
BTFD is a famous term that stands for “Buy The F#cking Dip” or “Buy The Dip”. If you are already familiar with the cryptocurrency markets you must have heard this term many times so far. BTFD is a cryptocurrency investment strategy that can be best explained as “Buy low and sell high”. It’s that simple! So why isn’t everybody using this strategy successfully? The answer is simple as well: high volatility in the markets.
As a Bitcoin trader there are some pitfalls in BTFD and I want to give you some guidance on avoiding catching a falling knife. So the question is actually what to buy in the dip and when? You might see some coins, that have fallen 20% in value, but is this a no-brainer to buy? Just because something has fallen hard, doesn’t mean when the market recovers, it will recover along with the other coins. Next, I will give some useful tips to use this strategy successfully.
BTFD and strategies to consider to handle volatility
- The trend is your friend – Always remember that the trend is your friend and don’t go trading against it. If you want to “Buy the Dip’ make sure the bigger picture is a bull market. The biggest mistake you can make is starting buying in a bear market(downtrend).
- Always be prepared – As I explained earlier the cryptocurrency market is very volatile and the trend can change very fast. To handle price swings it’s very wise to have some cash on the sidelines to buy some more crypto. Never invest fully in altcoins and leave 30% of your portfolio in cash.
- Buy in batches – If the price is dipping and you decide to buy, don’t buy 100% of your position. It’s better to be patient and buy in batches all the way down. If prices suddenly go upwards and your buy order wasn’t hit; no worries, there is always another opportunity in the future.
- Resistance levels – I know it’s very hard to enter the markets at the right time. You don’t want to enter too early but also don’t want to miss the buying opportunity. Some knowledge of technical analysis could be helpful here. Resistance levels could help you to time your buy orders in a better way and be more confident when trading.
|Good to know|
|Technical analysis is a very helpful method which could help you to be more confident when trading the cryptocurrency markets. A very useful tool is Tradingview. By using this tool it’s free for adding three indicators in your charts.|
Bonus Video: Crypto Investment strategy(2020)
Cryptocurrency Investment Strategy 3: Dollar Cost Averaging
Another popular method that is commonly used is called “Dollar Cost Averaging” or DCA. So how does this cryptocurrency investment strategy work? Very simple, you start off by putting aside the amount of money you are planning to invest in an asset.
Next, you invest equal portions consistently at regular intervals until you have reached the investment level you were initially aiming for.
If prices are high, you still buy. If prices are low, you still buy. You put the same amount of money each time, but you will get slightly more or less of the asset.
So while the price goes up and down, you will be investing a set amount of money. This strategy helps lessen the effects of price fluctuations, helping to lower your average buying price.
Example of Dollar-Cost Averaging
Let’s say you have 1,000 USD and you want to invest in Bitcoin. Like I explained earlier, the price of Bitcoin is undeniably volatile. To reduce the effects of volatility, you are going to invest using the DCA method. You plan to invest 100 USD every Monday for the next 10 weeks.
Over time, on some Mondays when you invest the price will be higher, and sometimes it will be lower. Consequently, over the 10 weeks, you will have an average investment price that cuts through most of the volatility.
That’s it. Dollar-Cost Averaging is a simple strategy, however, it’s often seen as a solid way of entering a market without caring much about market sentiment.
|Good to know|
|Got really excited about this investment strategy? To get you up to speed with this I’ll recommend using Coinbase exchange. At their platform, it’s very easy to set up recurring buys that will automate your buying strategy for Bitcoin.|
Cryptocurrency Investment Strategy 4: Copytrading
Copy trading is a new online phenomenon that was being introduced by stockbrokers in the traditional financial world. At these platforms, inexperienced stock traders can copy successful traders and have the opportunity to learn. As a matter of fact, a very low-risk opportunity to get some profit out of your crypto.
Also, the successful stock traders are rewarded with commissions for sharing their trades. This way both parties have the ability to benefit from it.
Social trading and investing platform
The massive growth of cryptocurrencies hasn’t been unnoticed by these online broker platforms. One of the platforms which also offer cryptocurrencies is E-Toro .
E-Toro is a social trading and investment network that enables users to watch the financial trading activities of other users, copy them, and make their own trades. The Company’s products, OpenBook and WebTrader, allow traders to learn from each other, share live trading information, and capitalize on their collective power.
Setting up a free demo account here is the best way to start and getting to learn the platform. Beginning with trading requires a minimum deposit of $200.
Cryptocurrency Investment Strategy 5: Passive Income
If you are a HODLER of crypto(see strategy 1) then the next step would be to try and earn some extra passive income on it. A very well-known property of currency is that someone can earn extra on it without much effort(like interest) and this also goes for many cryptocurrencies.
As a matter of fact, cryptocurrencies allow you many more possibilities if you compare it with traditional fiat money. Next, I will explain two ways of strategies you can use.
Running masternodes are part of a blockchain network but differ from ‘normal’ nodes. When masternodes are part of the network they are wallets that have a certain amount of coins staked into it. These masternodes are taking care of transactions and create new coins into this Blockchain network.
Also, these masternodes get rewarded for performing these tasks by a certain amount of tokens. To perform these tasks and get rewarded these masternodes have to be up and running 24 hours and for 365 days a year. A few examples of some profitable masternodes projects are Dash, Horizen, Pivx, and Zcoin. With very low risk it is possible to get some annual interest of about 10-20%, but you have to stake and lock a certain amount of crypto for it. In other words, earning passive income on cryptocurrency without the need to worry about price fluctuations.
Mining cryptocurrency to handle volatility
Another popular way of earning some extra passive income is cryptocurrency mining. If you are already familiar with cryptocurrency then you must know that Bitcoins are mined instead of minted. This by using a lot of electricity to mine the several blocks on the network.
Nowadays, it’s also very easy to join online cloud mining services. These online services allow you to hire a hashing rate for a certain subscription on a monthly basis. How higher the hashing rate, the higher the possible reward will be. Also, by joining a cloud mining service you don’t really care about short term volatility in the markets and fully focus on long term profits.
|Good to know|
|One of my favorite online services is genesis-mining. You can get a discount of 3% by using this action code(PJOqFD) when setting up a new miner.|
To handle the volatility in the current cryptocurrency markets can be a real challenge. Of course, investing, in general, comes with some risk, but especially in crypto-land, there is a lot of potential profits to gain!
I hope with this article, I could be more helpful in ways of entering these interesting cryptocurrency markets. Also, I would point out that this article is just my opinion and should not be considered as financial advice. With this being said, at all times just stick to your strategy and I will be sure you will be profitable in the end.
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