CRYPTOCURRENCY INVESTMENT STRATEGIES: Which One is the Best for You?

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Are you considering investing in cryptocurrency, but aren't sure where to start? Don’t worry. In this article, you’ll learn some of the basics of crypto investing, what to consider before investing and how you can potentially make profit from your crypto investments.

Table of contents:

What is cryptocurrency and how to invest in crypto?

In general, cryptocurrency is a type of digital asset that is created and secured using cryptographic techniques, supported by blockchain or other distributed ledger technologies, and that is not controlled by central authorities such as banks or governments.

Blockchains contain individual blocks of data, which can contain information about anything, such as cryptocurrency transactions. Each data block refers to the previous one, creating a chain of blocks. Using cryptography, the reference keeps the chain immutable, so hackers cannot alter it.

At the moment, there are thousands of cryptocurrencies available. Due to the ease of creating a new currency with smart contracts, that's largely what's driving this trend. A new coin can simply piggyback on an existing blockchain that already has an established network of computers verifying blocks.

There are several options available when it comes to investing in cryptocurrencies. Generally, people buy crypto through exchanges or invest directly in specific crypto projects. Additionally, one can consider investing in cryptocurrency funds or becoming a miner or validator. What approach is right or most suitable for you depends on what type of crypto investor you are.

Is cryptocurrency a bad or a good investment?

All investments involve some degree of risk. However, conducting proper research and due diligence before investing in crypto is not only essential to understanding the risks, but also to avoiding them.

Typically, traditional investors want exposure to Bitcoin as a hedge against inflation and the collapse of fiat-based economies. While bitcoin's volatility is a concern to many investors, volatility is expected to decrease as institutions and governments enter the market.

Investing a small portion of your disposable income in cryptocurrencies makes perfect sense. However, it’s  important to diversify your investments to prevent a total loss, instead of investing all your money in one project.

Best ways for beginners to start investing in crypto

The first step to investing in cryptocurrencies is to understand what you're investing in. The majority of cryptocurrencies have no tangible backing, neither hard assets nor cash flow. It is the case with Bitcoin, for example, where investors rely solely on someone paying more than they did for the asset. To put it simply, unlike stocks, where a company can grow profits and drive returns for you that way, most crypto assets rely on the market becoming more optimistic.

Secondly, you need to manage your risks when trading short-term assets, and this is especially true of volatile assets such as cryptocurrencies. As a new trader, you will need to understand risk management and create a process for mitigating losses.

In addition, you should ensure that your finances are in order. What does that mean? It means that you should be fully aware of what’s the right amount for you to invest. As a rule of thumb, investors - especially beginners - should never invest money that they can’t afford to lose.

Other techniques or strategies that beginners may consider include diversification and dollar cost averaging.

Best strategies for crypto trading

In the crypto trading world, there are a ton of strategies available. Here is a table summarizing the most widely used ones:
Buying and selling - the concept behind this strategy is simple: buy low and sell high.

  1. Arbitrage strategy - refers to the strategy under which a trader buys crypto in one market and sells it in another.
  2. Scalping strategy - scalping involves making money from small price fluctuations. This method is used by crypto scalpers to make quick profits by reselling assets.
  3. Crypto trading bots - this strategy involves the use of software that can automatically buy and sell for a user based on a predefined set of criteria or algorithms. These bots can trade 24/7 - allowing the user to do other things while they do all the work.
  4. Swing trade crypto strategy - is a strategy in which traders stay in their position for a short or medium time frame.
  5. Crypto futures strategy - refers to a method of speculating on the price of assets, including cryptocurrencies, without actually owning them.

Cryptocurrency long term investment strategy

Experienced investors know that becoming rich isn't something that happens overnight. Long-term planning and discipline are often required. In spite of the fact that cryptocurrency is a relatively new asset class, it may already be a viable long-term investment worth considering.

Cryptocurrency's relatively short history provides some insight into whether crypto is a good long-term investment. Consider Bitcoin and Ethereum, the two largest cryptocurrencies by market capitalization, for example.

Since Bitcoin was launched in 2009, its value has grown by almost 12,000%, whereas Ethereum has grown by over 92,000%. Investing in either digital currency early could have made you a considerable amount of money today.

If you’re a long-term investor and is more focused on building wealth over the long term, you may consider the following crypto investing strategies:

  1. Buy and hold - the concept behind this strategy is simple: buy crypto and hold them for the long term while anticipating to profit from a future price increase.
  2. Buy the dip - proponents of this strategy bets on the assumption that price drops are a temporary market anomaly that will eventually correct itself. They hope to buy at a discount while they last, and then sell when prices rise again.
  3. Crypto accumulation strategy - can refer to the overall addition of many positions to a portfolio. Although, it can also refer to an increase in the size of an asset position over many transactions.
  4. Crypto allocation strategy - crypto portfolio allocation involves identifying the percentage of crypto in your overall investments, then choosing the right mix of crypto that matches your risk appetite.
  5. Crypto staking - true to its literal meaning, staking is the act of committing your cryptocurrencies to support a blockchain network by contributing to its security and efficiency. For more information, click here.
  6. Crypto borrowing - crypto investors who do not wish to sell their crypto assets but want to receive funds to support their lifestyle or generate cash flow by using them as collateral use services such as Cake DeFi’s “Borrow”. For more information, you may click here.
  7. Crypto mining - is a competitive process that verifies and adds new transactions to the blockchain for a cryptocurrency that uses the proof-of-work method. The miner that wins the competition is rewarded with some amount of the currency and/or transaction fees.
  8. DCA (dollar cost averaging) crypto strategy - is a strategy where an investor invests a total sum of money in small increments over time instead of all at once.

FAQ: What is the winning strategy to invest in cryptocurrency?

The truth is that there is no one-size-fits-all crypto investing strategy that guarantees success. A strategy that suits you depends on your personal preferences or approach to investing. You may also want to consider your financial situation and goals when choosing a strategy.

  1. Who invests in cryptocurrency? - crypto investors are, usually, people who believe in the future of blockchain technology or that crypto will play a crucial role in global finance. Also, a recent study found that the US, Ukraine, and the UK are the top 3 countries for crypto use worldwide.
  2. How many crypto investors are there? - a crypto-related website estimates that, as of 2022, global crypto ownership rates at an average of 4.2%, with over 320 million crypto users worldwide.
  3. What companies invest in cryptocurrency? - according to a blockchain-related website, companies that have invested in cryptocurrency include Amazon, Google, Microstrategy, Microsoft and Tesla.
  4. How to invest in cryptocurrency without buying coins? - alternative ways of acquiring crypto includes using Move-to-Earn apps and playing Play-To-Earn games.
  5. How much crypto should I invest in? - again, this all depends on your personal preference and goals, and factors such as your financial situation and risk appetite. However, many consider it a safe bet to diversify in a way that majority of your holdings are in BTC and ETH, while also having a small portion of Altcoins in your portfolio.

Kickstart your crypto investing journey and start generating passive income by clicking here and signing up for a Cake DeFi account.

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