Cryptocurrency investment strategy – introduction
Investing in cryptocurrencies, just like any other investment, requires strategy. After all, if your goal is to profit, you must have in mind the best way of monitoring the performance of this type of asset, besides needing to structure an assertive decision-making process.
With that in mind, we prepared this article with several tips and information about what to evaluate when developing your strategy. We will discuss possible criteria that can be adopted and bring some examples of approaches that can be used in the market. Read on and learn more.
Criteria for developing your strategy
So, let’s see a few criteria that need to be evaluated when developing your cryptocurrency investment strategy.
Identify your goals
When choosing an asset and later a strategy to allocate your capital, it is very important to have clear goals. In this sense, the main question to be answered is: do you have short-, medium- or long-term goals?
An important consideration to be made in this regard has to do with the volatility of cryptocurrency prices. If we take the Bitcoin as an example, over the past few years, we will see a real roller coaster on the price curve. That is, substantial devaluations were followed by record valuations.
The good news is that, in the long run, the price trend of good assets has always been upward. In the last decade alone, Bitcoin grew over 6,000%. No “traditional” stock market assets have ever come close to that.
But why do we address this subject when we talk about identifying your goals to invest in cryptocurrencies?
For a very simple reason: cryptocurrencies, such as Bitcoin, have high volatility, although in the long run there is a trend of appreciation in good projects. Therefore, if your goal is to get short-term gains, you need to be very careful. Amid so many price changes, the chances of significant losses are high.
For those thinking about medium- and long-term objectives, the scenario is much more encouraging. After all, valuation is expected.
Evaluate the community behind the cryptocurrency
The community behind a cryptocurrency says a lot about its valuation potential. After all, the group of developers and other project collaborators are the ones directly responsible for offering an asset with a real value for the economy. And just as important it’s the work done by this group to promote the cryptocurrency. This is because, without promotion, there is little chance of the initiative thriving.
In view of this, it is very important to know the cryptocurrency community, its members, the work schedule for the coming periods and the progress already made by the main leaders of the project. With this type of information you can even identify the next big cryptocurrency to hit the market and profit considerably from it.
Understand the importance of diversification
Those with any familiarity with the universe of investments may have heard about the importance of diversification. In that case, that old saying “don’t put all the eggs in the same basket” applies.
This logic is also valid for investing in cryptocurrencies because the investor, aiming at establishing a good risk management, can decide to allocate his capital in several currencies.
Learn about 3 types of cryptocurrency investment strategy
Now that you know the main criteria for structuring your cryptocurrency investment strategy, let’s see some approaches widely used in the market.
Hold
Hold is a strategy in which the investor acquires the asset and maintains it for several years. Those who choose this approach are certainly betting on the long-term valuation of the asset.
The great advantage of operating using the hold strategy is simply not worrying about short-term fluctuations and not having to monitor, at all times, the behavior of the asset. As in fundamentalist analysis, the investor bases his analysis on the potential of the company. In the case of cryptocurrencies, this happens according to the value proposition of the project.
Arbitration
Arbitration is another kind of approach widely employed. Basically, it involves buying and selling assets at different prices between platforms or brokers aiming at profiting on this difference. In practice, it’s as if you bought a certain volume of coins in the broker “X” for the value “Y” and sold it with a percentage increase of “Z%”.
However, as we have already highlighted throughout this content, the short-term fluctuations in cryptocurrency prices makes any strategy with short-term goals very risky. Imagine, for example, that you identify the price difference between two brokers and perform the arbitration to profit on the transaction in the same morning.
In this case, even if it is a short period of time, there is no guarantee that prices will remain. A situation may occur in which you acquire the assets at the expected value, but the cryptocurrency devaluates, which can represent a significant loss.
Swing Trade
As many already know, swing trade is a strategy of buying and selling assets in which you monitor their prices for months or weeks to profit from the operation. Generally, the investor establishes valuation and devaluation ceilings to manage the risks.
Let’s say, for example, that you purchase a unit of a cryptocurrency and the ceiling for appreciation is 20% and for devaluation is 10%. That way, as soon as the asset reaches some of these price zones, the sales order is executed.
It’s as if even before you acquire the asset you establish how much you expect to earn and the maximum you are willing to lose. Many experts even indicate that it is essential to work with this level of predictability, as this keeps the investor focused on their goals.
Cryptocurrency investment strategy – conclusion
Building a cryptocurrency investment strategy demands dedication, effort and a lot of study. Therefore, it is essential that you develop a study routine to understand the fundamentals of cryptocurrency and the circumstances of the market to make any decision.
Remember that you are the main responsible for your financial future and therefore this matter should be taken seriously!
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