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Beginner’s Guide to 3 Cryptocurrency Investment Strategies

In the past few years, cryptocurrencies, commonly referred to as crypto, have gained huge popularity. The reason for this lies in the considerable earning potential they can unlock, provided that you implement adequate cryptocurrency investment strategies.

For those who are not familiar with this concept, crypto stands for virtual currencies that can be purchased, sold, or stored in special places called wallets. To some extent, these are similar to traditional assets such as stocks or bonds in terms of their ability to gain or lose value.

However, unlike those conventional assets, cryptocurrencies are extremely volatile, implying that their value can skyrocket or plunge in a day or two. Yet, it is their unpredictability that may grant you considerable profit if you play it smart.

Why Should You Invest in Cryptocurrency?

The fact that the world of crypto is not fully explored makes many people wonder whether and why they should invest in it. The truth is that cryptocurrency is a fairly new concept and, as such, has a lot of potential. 

First and foremost, investing in crypto may earn you lucrative returns. As already mentioned, the earning potential of these currencies lies in the unpredictability of their value. By recognizing the right moment to buy, sell, or hold crypto, you may gain high profits.

Second, cryptocurrencies are accessible to everyone. All you need to start investing is your PC or smartphone and internet connection. Once you’ve created an account on a crypto exchange and set up a wallet, you’re ready to start building your investment portfolio. 

However, while volatility may grant high returns, it can also incur losses, as the value of cryptocurrencies tends to oscillate on a daily basis. Such fluctuations in price may drive you to buy or sell coins at the wrong time and thus fail to generate profit.

Cryptocurrencies are decentralized, implying that no official institutions, such as banks or governments, have authority over them. Though this is a huge benefit, as there are no central intermediaries, it is also a drawback since you have no protection in cases of theft or scams.

Cryptocurrency Investment Strategies

Getting familiar with cryptocurrency investment strategies is essential if you’re looking to invest in and profit from crypto. Not all digital currencies are created equal—some are more volatile, while others are more stable.

To avoid losses and make the most of your investment, you need to familiarize yourself with both the risks and the opportunities. Also, grasping the basics of investment strategies will let you spot the one(s) that suit not only your risk tolerance but also your trading style.

To avoid losing huge sums of money, a golden rule to keep in mind is to always invest the amount you can afford to lose.

#1. Buy and Hold Cryptocurrency (HODL)

HODLing (Holding on for Dear Life) is a strategy that involves buying cryptocurrencies and holding them for a longer period of time.

Such an approach to investing enables investors to gain profits from long-term price appreciation over an extended period. HODLers are not subject to short-term oscillations in value, so they won’t fall prey to FOMO (Fear of Missing Out) and sell low after buying high.

The greatest disadvantage of this strategy is that it may take time to accrue the desired profit. Plus, it can sometimes make investors miss the chance to take advantage of short-term oscillations in the crypto market.

#2. Cryptocurrency Day Trading

As opposed to HODLing, crypto day trading involves entering and exiting a position on the same day. It is also referred to as intraday trading, as all trades are completed within only one day.

The point of this strategy is to profit from market movements and capitalize on short-term price fluctuations. Since the value of cryptocurrencies is unpredictable and volatile, day trading can be highly rewarding. In addition to numerous crypto exchanges being available 24/7, this strategy offers high liquidity and enables traders to enter and exit positions effortlessly.

While the volatility of cryptocurrencies unlocks huge earning potential, it also entails the risk of substantial losses. Cryptocurrency prices can change dramatically within minutes, resulting in missing opportunities to buy or sell crypto.

Additionally, day trading requires constant monitoring and analysis of market trends. This can be not only mentally but also emotionally draining for traders, putting them in danger of becoming victims of FOMO.

#3. Cryptocurrency Diversified Portfolio

A diversified portfolio in crypto trading implies that you invest in more than one asset. Another rule of trading is that you shouldn’t put all your eggs in one basket. Instead, you can opt for an array of highly rewarding assets to minimize the risks and maximize the returns.

Not all cryptocurrencies exhibit the same level of volatility. Diversifying your portfolio can lower the risk of wasting money since different crypto performs differently. The value of some assets may suddenly drop, while the price of others will increase unexpectedly, thus balancing your portfolio.

The downside of portfolio diversification is that it requires extra time and effort to monitor cryptocurrencies and learn about them. Additionally, though it minimizes the risks, it may also limit potential returns, particularly if investors shy away from investing in highly volatile assets.

Key Takeaways

Cryptocurrencies are a relatively new asset class whose full potential has not been entirely explored yet. Due to this, their effect is twofold—they could unlock lucrative returns, but at the same time, they may incur huge losses.

To avoid losing your precious money, you need to educate yourself about crypto and cryptocurrency investment strategies. New coins and tokens are constantly emerging, and barely any are the same. Do your due diligence and learn, learn, learn until you find the currency and strategy that fit your trading style.

And remember: never invest money you can’t afford to lose. Crypto is extremely volatile, and the money you have been saving for ages may vanish in seconds if you don’t invest wisely.