In order to make money from cryptocurrency trading or investment, you need to discover the strategy that brings the best result for you. Your best trading strategy might be different from my best trading strategy. That is why you must pay attention so that you can discover yours. There are different ways that you can invest in Bitcoin and other cryptocurrencies (altcoins). Your trading pattern will determine the best investment strategy for you. We will look at the most popular ways in this article.
- 1 Best Crypto Trading and Investment Strategies for Beginners
- 2 Long Term Bitcoin Investment vs. Bitcoin Trading
- 3 Helpful Tips for those Investing in Cryptocurrencies for the First Time
- 4 Real Life Bitcoin Investment Strategies
- 5 Doubling your Bitcoin (Pay Attention)
- 6 Some Secured Centralized and Decentralized Exchanges
- 7 Conclusion
- 8 Recommended Business and Entrepreneurship Books
- 9 Subscribe to Our Blog Newsletters (Enter your email address)
Best Crypto Trading and Investment Strategies for Beginners
Now check out some of these recommended and most profitable cryptocurrency investment strategies:
1. Long Term Buying and Holding
This is the Bitcoin investment strategy that we recommend. Here you will buy Bitcoin at a certain price and hold on to it for a period of time in the hope that the value will increase. You may also see this strategy called “hodling”. When you decide to buy and hold it is very important that you do not just take anyone’s advice on whether Bitcoin will rise or fall. You need to know how Bitcoin works and do your homework using the tools available to come to a decision yourself.
If you are going to adopt a buy and hold Bitcoin investment strategy then we suggest that you do the following:
- Do not invest more than you can comfortably afford to lose. As we said earlier, Bitcoin is a high risk investment and this should be in your thoughts at all times.
- When you have purchased Bitcoins don’t leave them in an exchange wallet. Get your own wallet and move them there. We will discuss the different types if cryptocurrency wallet and their advantages and disadvantages as a full section.
- Use a reputable exchange to make your Bitcoin purchases. This may cost you a bit more but it is better to be safe than sorry.
- Don’t purchase all of your Bitcoins in just one trade. Use the principle of Dollar cost averaging (DCA) and commit to purchasing a certain amount every month (or more frequently) throughout the course of the year. When you do this you pay average prices during the year.
2. Short Term Bitcoin Trading
As we said before this is where you buy Bitcoins at a low price and then sell them at a higher price to realize a profit. The time frame for these investments is short. We do not recommend that you start out with short term Bitcoin trading. As you learn more about Bitcoin you can move to a shorter term trading strategy. It is certainly possible and there are some very large players in the Bitcoin market making profits regularly on short term Bitcoin trades. You need to learn how to trade properly to make this work which takes time and practice.
3. Bitcoin Mining
In order to make any kind of profit with Bitcoin mining you need to invest in a lot of high end computer equipment and get the cheapest electricity that you can find. And then there are no guarantees! Mining has become a lot harder over the years. There are less and less Bitcoins to find and more and more people mining. It is just not a cost effective way to invest in Bitcoin in our opinion. Use the money you would spend on equipment and electricity to buy and hold Bitcoin instead.
You may have heard of cloud mining for Bitcoin. The idea here is that you pay for a service that will mine on your behalf using the web. In our experience these are either scams or so expensive an investment that you might as well just use the money to purchase your Bitcoins.
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Long Term Bitcoin Investment vs. Bitcoin Trading
Many people confuse the words, investing and trading, one for the other. It’s understandable considering both are activities by which you can make your money earn more money and as such, both are actually investments! But they’re different and you’ll need to know whether it’s trading you want or investing, particularly for the long term.
Trading is basically short-term investment. You buy a financial asset like Bitcoin and the moment its price is up to a certain percentage, (say 10%, 20%, 30%, 40% or even 50%), you sell it immediately, even if it’s just within a few hours. Trading is a very quick way to make profits and during times when markets are moving sideways, no clear trend if bullish or bearish, you can still make a killing with your return on investments. This’s because during sideways movements, prices will still move up and down many times. If you’re able to generate at least a 10% profit for every time the market moves up before plunging down, it’s possible for you to double your money in just a week or two.
On the other hand, investment or more specifically long-term investment, is a strategy where you just buy a financial asset, such as a cryptocurrency, hold on to it for several months or years before selling at a much higher price. Because of its buy and hold nature, this investment strategy’s also referred to as a “buy it and forget it” strategy. Long term investors can also be called Hodlers.
Both trading and investing have their pros and cons. Trading requires you to closely monitor your investments so you can quickly catch its price as it hits your minimum rate of return. But that requires that you practically do it full time, which is one of the reasons why many people don’t invest in cryptocurrencies or even stocks. They need to monitor their investments hour in and hour out to make sure they earn big time and don’t lose money. Most people don’t have the luxury of time to do that because they’ve jobs or businesses to run. But those who do it, are able to earn more income from their investments in a shorter amount of time.
Most investors find long-term investment appealing because they don’t have to be on top of their investments day in and day out. They just buy and forget about it. They can, just for information’s sake, check out the market price of their market-driven investments once every month. But most other long-term investors simply wait for a year or more before checking in on their investments.
Why’s that so? Particularly if they invest in lower risk investments like blue chip stocks, their prices generally go up through the years regardless if they monitor them or not. But the profit opportunities may be generally much lower compared to trading strategies.
So what did you notice between the two? The higher the expected returns, the higher the risk or in this case, the workload. So if you’re willing to put in much more time and effort to earn bigger and quicker profits, trade. But remember that you need to have a good knowledge of cryptocurrencies in order to make fortunes from trading them, unlike long term investing. If you want to just sit back, relax, and reap your rewards after several years, go for long-term investing instead.
Helpful Tips for those Investing in Cryptocurrencies for the First Time
The first thing you’ll need to do to start is to choose a particular cryptocurrency to invest in. Even if cryptocurrencies sound like a generic group of investments, each of them still has their own unique characteristics that in effect, differentiate them from one another. As such, it would be foolish to assume that if you’ve studied one, you’ve studied them all. Therefore, you must exert good effort in researching on at least the major cryptocurrencies before choosing which to invest in.
After you’ve chosen the cryptocurrency of your investment choice, it’s time to decide on which platform to buy them. In other words, it’s time to decide on which cryptocurrency exchange to sign up with and buy your first cryptocurrency investment.
What are exchanges? Exchanges refer to institutions or businesses where buying and selling of specific financial assets are allowed. If you’re looking to buy or sell shares of stock, then you’ll need to do so through a stock exchange such as the NASDAQ or the New York Stock Exchange (NYSE). If you are looking to trade futures and options contracts, then the Chicago Mercantile Exchange is one of the best exchanges to go to. For investing in cryptocurrencies, you’ll need to do it through a cryptocurrency exchange.
One of the main reasons why you’ll need to sign up for an account with a cryptocurrency exchange is this: it’s the only place where you can buy sell cryptocurrencies. Unlike shares of stock, currencies, or bonds that have physical versions and regulated markets, cryptocurrencies are purely digital in nature and thus, have no active markets outside the digital or online markets that cryptocurrency exchanges offer.
After deciding on which platform to buy your cryptocurrencies, go on and create an account with that exchange. Generally speaking, the account opening and the verification process can be a bit tedious because most of these exchanges, being unregulated by any government financial institution are very careful to make sure that they’ll be transacting with the person who you claim to be. The more they’re able to do that, the more they’ll be able to ensure your accounts’ privacy and safety. So while it may be a bit tedious, you can be more patient knowing that at the end of the day, it’ll all be for your own benefit.
After opening an account online, most exchanges will probably ask you for a scanned copy of any valid government issued ID from your country, such as a driver’s license or passport. On average, cryptocurrency exchange accounts are validated and processed within 3 working days but in some cases, more than a week. Some of them require that you verify your account before you can start trading on the platform. Others will give you a daily transaction limit, say 2 BTC. This means that you cannot withdraw or deposit more than 2 BTC daily without verifying your account.
One last thing before buying cryptocurrencies: consider getting a cold storage hardware wallet to ensure the safety of your cryptocurrency investments. As mentioned earlier in it’s highly recommended that you get a cold storage hardware wallet to ensure the safety of your cryptocurrency investments’ private keys and consequently, your cryptocurrency investments. But if you’re on a tight budget or simply don’t want to spend extra, you can always use hot storage wallets, but at relatively higher risk for hacking and losing your hard earned cryptocurrency investments.
After you’ve gotten your wallet regardless if it’s hot or cold storage, it’s time to buy your cryptocurrency on your chosen exchange. After you’ve successfully bought your cryptocurrencies in that exchange, transfer your private keys immediately to your cold storage wallet – if you’ve chosen to use one, or to your hot storage wallet of choice.
One thing you’ll simply need to know about buying your cryptocurrencies on exchanges is that they don’t come for free as exchanges will charge you a transaction fee for their services. Please don’t worry – transaction fees aren’t excessive. Exchanges, after all, are businesses that also need to make money to continue operating successfully and consistently. Cryptocurrency exchanges would be hard pressed to continue providing you with great service if they don’t make enough money to sustain their operating expenses and upgrade their systems regularly. Transaction fees are normally a fixed percentage of your transaction so that it only goes up when the value of your transactions go up. Most exchanges charge around 0.5% to 5% as transaction fee.
So to summarize the steps on how to start investing in cryptocurrencies:
- First, choose your cryptocurrency or currencies.
- Choose a cryptocurrency exchange on which you can buy your chosen cryptocurrency, and open an account with that exchange.
- Now after your account with your chosen cryptocurrency exchange has been validated, choose the type of wallet in which you’ll store your private keys and cryptocurrencies, preferably a cold storage hardware wallet.
- Buy your cryptocurrency through your validated account with your exchange.
Real Life Bitcoin Investment Strategies
Now let’s look at some of the real life Bitcoin investment strategies that are working well for some savvy investors. I have made no secret of the fact that Bitcoin is a volatile digital currency and it goes up and down in value on a regular basis. That is why we recommend that you adopt a long term approach to your Bitcoin investing so that if the price does drop you give it time to recover.
So here we will take a more in depth look at some of the “real life” methods that successful Bitcoin investors use to make a profit.
Dollar Cost Averaging (DCA) Investment Strategy
This really is the best Bitcoin investment method for beginners because it removes the need to enter the Bitcoin market when the timing is right. A lot of novice Bitcoin investors spend a lot of time and really stress out waiting for the price of Bitcoin to fall to the right level.
When you use the dollar cost averaging strategy for your Bitcoin investing, you will spread your risk over a time period. All you need to do is make purchases at regular intervals and then hold them in your secure wallet.
Cost averaging refers to the strategy of continuously buying a specific financial asset (e.g., stocks, bonds, currencies, and cryptocurrencies) at smaller increments regardless if the market price for that asset is going down or up. It’s also quite obvious to say that this’s a good strategy when the price of a particular financial asset has been going up but even when prices are going down?
Seriously? Yes! Doing that when prices are going down helps you bring down your average cost on that financial asset, which means you can recoup your losses much easier than if you simply bought once and waited for the price to go back up to your buying price.
To help you understand better, here’s a real life instance of cost averaging strategy:
Assuming you bought 1 Bitcoin at $20,000 and its price tanked to just $15,000. In order to recoup your losses, you’ll need to wait for its price to go all the way back up to $20,000, right? Right!
But if you just bought another Bitcoin when it tanked to $15,000; that gives you 2 Bitcoins at an average buying price or cost of $17,500 only. Therefore, you simply don’t have to wait for Bitcoin prices to climb back up to $20,000 to break even. You will break even when the price rises to $17,500. In fact, by the time the price rises back to $20,000, you would’ve made a $2,500 profit already because of the cost averaging strategy.
Considering you can’t just perfectly predict if the price will go down or up, it’s best to spread out your total investment money for cryptocurrencies in 5 installments so you can apply cost averaging. So if you’re actually planning to invest a total of $1,000, then spread it into 5 monthly investments of $200 per. That can eventually help you average your cost down if the prices go down within the next 5 months.
Investing a Lump Sum into Bitcoin at a Time
This method is definitely not one for the faint of heart but we want to cover all bases here. When you invest a lump sum in Bitcoins you will purchase them at a specific price point. There is an element of risk when you do this.
Let’s assume that you have $50,000 to invest. Naturally you want to get as many Bitcoins as possible for your investment. In order to have the best chance of doing this you have no choice but to wait until the Bitcoin price goes down.
There is no other alternative here. You must wait and time your entry into the Bitcoin market as well as you can. The problem is that in practice the price of Bitcoin fluctuates very often so predicting the next price dip is really tough to do.
If you have a lump sum to invest right now we wouldn’t advise that you start with this. It takes experience to make a good judgment of the right price dip. Even the experts get this wrong sometimes.
When you are new to Bitcoin investing and want to invest a lump sum you may see a price dip and then think to yourself “if I just hang on for a while it may go down even more” or “what if the price never reaches my low point?”
The same scenario applies to selling your lump sum investment. How do you know the best price to sell your Bitcoins for? It may be very difficult to sell at the price that you need to make the profit you planned for.
If you sell too soon and the price goes up even more then you will criticize yourself heavily. Think what you could have done with all of that extra profit! Obviously a lump sum investment will provide you with a much higher profit than the dollar cost averaging method if you get the timing just right.
Bitcoin Investing Hedge Fund
You may not be aware of this but there are actually cryptocurrency hedge funds available that include Bitcoin. This could be a good alternative for you if you do not want to learn about Bitcoin investing that you will need to do if you want to use other investment strategies. The biggest drawback with any hedge fund is the expensive performance and management fees.
Cryptocurrency hedge funds will insist that you pay the management fee upfront. Usually these fees are in the region of 2% of your investment so if you want to invest $100,000 then you are going to have to pay around $2,000 as a management fee which leaves you with $98,000 for investing in cryptocurrencies.
You will be appointed a hedge fund manager and they work on a profits percentage basis. This can be as high as 20% so if you were able to secure a $40,000 profit from your investment then you will have to pay $8,000 to your hedge fund manager.
These figures may startle you and cryptocurrency hedge funds are not going to be everyone’s idea of a good thing. But when you think about it you will have totally hands off investing here which can make big profits for you.
You can check out these 30 helpful strategies for making money as a crypto trader or investor.
Doubling your Bitcoin (Pay Attention)
Have you seen websites that claim that they can double your Bitcoin holdings? Or maybe you have come across sites that claim they will pay you high levels of interest every day on your Bitcoins? We have one word for these kinds of websites; SCAM!
There are lots of websites that offer high yield investment programs (HYIP) and almost all of these are scams too. What happens here is that these sites take money from people all round the Internet in exchange for high returns. They use the money that they get from new people signing up to pay high returns to the initial investors which creates a buzz.
Then guess what? A few months later the website simply disappears! Most people lose their money and they have no way to get it back. Don’t fall for these Ponzi scheme type scams. You cannot double the amount of Bitcoins that you have using these sites. It is more likely that you will lose all of your Bitcoins.
Some Secured Centralized and Decentralized Exchanges
Some of the biggest and most popular cryptocurrency centralized exchanges include: Coinbase Pro, Binance, Kucoin, Gate, Mexc Exchange, Kraken, Bitfinex, Gemini, etc.
Some of the biggest and most popular decentralized cryptocurrency exchanges include: Uniswap, Pancakeswap, Quickswap, Aave, Curve Finance, Compound Finance, Balancer, etc.
- Simplified Guide to Cryptocurrency Market Analysis & Tools
- 15 Best Secured Cryptocurrency Exchange Platforms for Trading
You have learnt the different cryptocurrency trading and investment strategies: short term, long term, real life Bitcoin investment strategies, etc. Feel free to try out some of these investment strategies until you discover the one that works best for you. You can drop your contribution or questions about crypto investment strategies in the comment section below. Enjoy!
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