Questions I hear commonly are, ‘how do I get into investing in cryptocurrency?’ and ‘what is the best strategy for investing?’.
As any investor knows, it is essential to have a long-term plan, and investing in crypto is no different.
So let’s consider some of the best practices and crucial points you must consider when investing in cryptocurrency.
Investment strategy is a massive subject and one which I cannot begin to cover in the necessary detail here. For the sake of this article, we’ll touch on some of the cornerstones you must consider before you decide to invest in crypto.
Investing in Cryptocurrency
Investing can be a very emotional business. Without a clear strategy, it is very easy to let these emotions overwhelm you at times when it is essential that you keep a cool head. No one knows how the market will behave, but with a clear strategy, taking advantage of market conditions becomes a whole lot easier.
A study by Fidelity International found that, historically speaking, their best investors were either dead or inactive. Make of that what you will. The overarching message here is that leaving investments to mature over a long period is often more profitable, or perceived to be, than trying to time the market.
First of all, and most importantly, do not risk any more than what you can afford to lose. No matter how appealing the market looks and how much research you have done, markets can turn in seconds. Cryptocurrencies are no exception.
In fact, the crypto market has a reputation for volatility. While this may be appealing for the swing trader, it is an environment that is not for the faint-hearted, especially those who have risked everything.
Diversification
The next point to consider is diversification. As in traditional investing, a healthy crypto portfolio will feature a wide variety of projects which cover every corner of this ever-expanding, exciting, and nascent industry. Percentage allocations are a personal decision, however any modern, profitable crypto portfolio should consist of a combination of Layer 1s, Layer 2s, DeFi, Metaverse, and supply chain coins.
The list is endless and many projects have a variety of overlapping use cases. Any respectable crypto portfolio will likely feature a combination of the above.
Deciding when to invest is probably one of the most difficult and important questions you must ask yourself before entering the market. As I mentioned above, timing both the top and bottom of the market is practically impossible. Understanding that is vital to your emotional management as you progress through your investment journey. That said, it is possible to negate the effects of poorly timed decisions by using a DCA (dollar cost averaging) approach.
With this strategy, it is possible to spread your risk across several days/weeks/months rather than buying all of your crypto at one particular time. It is a universally held opinion that the DCA approach is the safest and, in the long run, the most profitable way to build a position in crypto.
Exit Strategy
Thinking about and planning an exit strategy is also extremely important. If you exit a position in profit, will you reinvest or take the profits to the bank? This crucial question is harder to answer than it appears and underlines the importance of creating an investment strategy and long-term plan.
Whatever method or strategy you choose, you must be comfortable with your decision-making and your appetite for risk. The effective management of both factors, accompanied by a long-term plan and exit strategy, are the cornerstones to successfully investing in cryptocurrency.
