Cryptocurrency

Cryptocurrency Investment Tips to Double Your Gains

A lot of us hear stories of people making a fortune through cryptocurrency and NFTs. Trust me, it is really hard to ignore in this euphoric environment. We promise ourselves that we will start investing in cryptocurrencies once we learn enough about them. But then, the day never comes. You try to wrap your head around the terms like Blockchain, Decentralization, Web3 etc and give up eventually. Well, today, we plan to share some cryptocurrency investment tips, that are going to be a game changer for you.

You cannot deploy your stock market knowledge to create your cryptocurrency investment strategies. It is a cross between investing in start-ups and well-established brands. Apart from that, one needs to maintain a balance between profit booking and long-term ‘hodling‘. If this sounds like too much work, keep calm and read on as we unfold your cryptocurrency investment guide.

Analyze Trends to Make Market Decisions:

The trend is your friend. If you are not into technical analysis, it is time to get started. Cryptocurrency markets are notorious for volatile swings. This makes it a really good use case to trade. Even if you learn some basics of analyzing trends and patterns, you could make a decent amount irrespective of the market conditions. Here is a quick example. For the past 15 days, BTC is moving constantly between 18k to 21k. As a smart trader, someone could long bitcoin at 18k levels and short it at 21k levels.

This is of course easier said than done. Becoming a professional requires a lot of research and practice. Let us jump on to some tips and tricks on how to analyze these markets.

Read about the types of cryptocurrency investments:

The best trick to make money out of the cryptocurrency market is to do your own research. They call it DYOR here. Initially, every newcomer treats all the cryptocurrencies like Bitcoin. You’d be surprised to know the number of people who think that Ether’s supply is capped like Bitcoin.

Therefore, it is paramount that you read about different types of cryptocurrencies. And the best way to do it is by reading whitepaper of the projects you intend to invest in. Upon a simple glance, you would be able to categorize markets into the following broad categories:

A. Layer 1s:

These are the Blockchains that are the base networks. Layer 1 Blockchains can validate and finalize the transactions without any third party. Examples of some layer 1 Blockchains are Bitcoin, Ethereum, Solana etc.

B. Layer 2s:

Layer 1 Blockchains are hard to scale as we have seen with Bitcoin and Ethereum. For the unitiaited, both these layer 1 Blockchains are extremely slow and can get quite expensive as the traffic increases. Therefore, they are not fit for scaling to the level of something like Visa. Alas, layer 2s came into being.

Layer 2 is a solution or a group of solutions that are meant to solve the scalability issues of Layer 1s. The biggest example of a Layer 2 is Polygon and Arbitrum. These solutions help solve Ethereum’s scalability issues using various technologies like side chains, zk rollups, snarks etc.

C. Ethereum Killers:

Because Ethereum had all these scalability issues, there was sufficient time and space for alternatives to enter the market. Therefore, now we have a whole bunch of competitors (Layer 1s) that aim to overtake the popularity and network of Ethereum. Solana, BSC, Avalanche are some of the Layer 1s that are catching up real soon.

D. Gaming:

Blockchains gave birth to P2E models of gaming. P2E or Play to Earn games intend to pay users in crypto (real money) for playing them. Since there is a direct financial incentive involved in playing these games, a lot of people are bullish on this trend. Some of the examples of P2E games are Axie Infinity, CryptoKitties etc.

E. Metaverse:

This is another sector that caught fire. Especially when Facebook decided to rebrand it as Meta. A web3 Metaverse will be powered using NFTs and Blockchain technology. Key examples of Metaverse based projects is Enjin, Sandbox and Decentraland.

F. Web3:

Web3 is a collective term used to describe the next generation of the internet. While web1 was strictly ‘read only’, web2 enabled interaction. This gave rise to the social media giants like Facebook and Tiktok. Web3 promises to deliver web2+ownership using Blockchain technology. Some of the projects in this space are Chingari, BAT etc.

Understand the volatility to Manage Risk:

Cryptocurrency markets are well known for their volatility. This nature can be attributed to factors like smaller market size, low level of regulation, purely digital nature and immaturity of the investors. While this volatility can cause sleepless nights for many, some use it to make returns overnight.

Enthusiasts have now created volatility indices to quantify it. One example of such an index is BVOL or Bitcoin volatility index. There are other indices that track the same for Ethereum and Litecoin.

Based on your risk profile, one needs to do some risk management as well. This risk management can take the following shape:

A. Counterparty Risk Protection:

Cryptocurrencies are decentralized. Therefore, the onus of safeguarding your funds lies on you. Since Blockchain transactions are irreversible, double-check before taking any trade. Also, there are innumerable instances of exchanges getting hacked, so if you are not trading actively, it is better to withdraw your coins in a self-custody wallet like Ledger etc.

B. Quantity Over Quality:

It is easy to get caught in the FOMO. Especially when you find a coin every now and then jumping by 100% in a single day. However, one needs to stick to their guns and trade smarter over trade bigger!

C. Leverage:

Leverage refers to borrowing money for trading. Some exchanges allow up to 20x margin on your deposit. However, one needs to realize that losses are multiplied in equal proportion if trades do not go your way.

Make an Investment Strategy:

An investor without a strategy is like a blind man in a marathon. There needs to be a clearly defined strategy before investing in Cryptocurrencies. Some of the best investment strategies for investing are as follows:

A. Liquidity:

Liquidity refers to the ability of an asset to be converted into cash quickly. A lot of digital assets out there do not have any buyers. Therefore, you might be stuck with something that you never wanted. One should keep an eye on the trading volume before buying any crypto asset.

B. Invest as per your appetite:

Top 10 cryptocurrencies by market cap change in every cycle. Something that was supposed to be the next big thing becomes non-existent over a short period of time. What I am trying to say is that no one can predict the future with 100% accuracy. Therefore, invest only that would not compromise with your sleep.

C. Book Profits:

Device a legitimate profit booking strategy when you are investing in cryptocurrencies. This is because a lot of coins never hit their all-time high twice. Every purchase you make should be accompanied with a target in mind. And that target should be honoured once it is met.

Diversify Your Crypto Portfolio:

Remember the good old saying around eggs and baskets? That is even more relevant when it comes to cryptocurrency. Let me prove it. There once was a cryptocurrency called LUNA. Everyone believed in Luna’s success. So much so that people started investing their life savings into this. As a result, LUNA made it to the top 10 cryptocurrencies by market cap. One fine day, due to some issue (not going into details here), LUNA was completely wiped off. Investors lost $50B worth of wealth.

So, no matter how lucrative investment is, do not ape into it with all your money. Some of the top ways to approach diversification are as follows:

By Market Capitalization:

This concept is very similar to investing in large caps, mid-caps and small caps in the stock market. For the uninitiated, market capitalization is derived by multiplying the current price and circulating supply of the token. This gives us a fair idea of the overall size of the cryptocurrency. Here’s an example to signify the importance of this metric.

There is a meme coin called Shiba Inu. People ape into SHIB thinking that if it ever hits $1, they would be millionaires (current price: $0.00001094). What they don’t realize is that the total supply of @SHIB is 589,735,030,408,323. If it ever hits $1, it would surpass Apple in its market capitalization. Therefore, it needs to be taken with a pinch of salt.

Diversify your portfolio in a way that you have a large portion of your funds in the bluechip large-cap cryptocurrencies like Bitcoin and Ethereum. A sizeable chunk in mid-caps (other cryptocurrencies featuring in top 10) and a small portion in the projects that are new but you believe in them.

This is done because large caps are relatively safer as compared to mid-caps followed by small caps.

Invest in Different Countries:

There are a lot of countries that are bullish on crypto. The US and China carried forward the web2 revolution. Web3 hub of innovation is still up for grabs. Therefore, one needs to keep an eye across the globe. Currently, a lot of action is happening in Dubai, Turkey, Germany etc. It is better to diversify by investing in projects coming out of crypto-forward countries.

Invest in Different Cryptocurrency Blockchains:

Do not be a maximalist. The entire industry is so new that it is detrimental to your cause if you try to stick to one Blockchain whilst ignoring others. No one can predict the future for sure. As an example, when you invest in Ethereum, take a smart bet on Ethereum killers too. This way, your gains would average out in either of the situations.

Diversify by location:

Although crypto is global in nature, the regulatory uncertainty introduces the element of geography while investing. For example, one would not want to put their money into a project originating from China. Given their love-hate relationship with crypto, it is an extremely dubious territory.

Make Investments for Long Term:

If you are not in it for the long haul, it is better to stay away. As mentioned earlier, we are at a similar stage where the internet was deemed evil by society. Therefore, it may take a while before we see mass adoption. Until then, we need to hold tight. Here are some cryptocurrency investment strategies for the long term:

A. Dollar-cost Averaging:

Easily the best way to invest in cryptocurrency. Dollar-cost averaging refers to averaging out the high and low prices of your purchase by investing regularly at a fixed date. This is the equivalent of a Systematic Investment Plan (SIP) in the equity market.

B. Staking:

And while you are at it, why let your crypto sit idle? You can very well stake your crypto to earn some yield on top of it. Cryptocurrencies that run on a proof-of-stake consensus mechanism require multiple holders to stake their crypto to safeguard the network. These people are then rewarded for locking in their crypto. For example, staking ETH can fetch up to 4% annualized interest on your investment. All this while ETH may jump up in prices.

C. Buy the dips and HODL:

Another great strategy to stay on the top of your crypto game. This involves around buying a cryptocurrency whenever it falls beneath a certain threshold set by you. It would continue to bring your average buying price lower and set you up for the trend reversal.

D. Invest Indirectly with Bitcoin ETFs:

If you still have that eerie feeling about investing in cryptocurrencies, it is better that you take this route. Rather than investing directly, you could have an indirect exposure by investing in ETFs or exchangetraded funds. An ETF is a basket of securities that tracks an underlying index. So a Bitcoin ETF would take your funds and invest in Bitcoin and related cryptocurrencies. You can trade this ETF on the stock market directly.

Some of the Bitcoin ETFs are as follows:

  • ProShares Bitcoin Strategy ETF (BITO)
  • Valkyrie Bitcoin Strategy ETF (BTF)
  • Grayscale Bitcoin Trust (GBTC)
  • VanEck Bitcoin Strategy ETF (XBTF)

Don’t Place All Your Coins in One Basket

You know the thing about technology is that it is ever evolving. Yahoo was so popular back in the day and it isn’t even around anymore. We couldn’t imagine our lives without the VLC Media player and now we don’t even watch videos offline. From Blockbuster to Netflix to a gaming company, the biggest of the industry have also perished.

And if at all you are looking at a smart investment, here’s an alpha about a coin I recently found came across.

EPNS is a decentralized communication protocol for Web3! Using which any dApps, smart contracts, backends or protocols can send comm (starting with on-chain / off-chain / gasless notifs) tied to user wallet in an open, gasless, multichain and platform-agnostic fashion. The open comm layer allows any crypto wallet/frontend to tap into the network and get the comm across.

This post is sponsored by EPNS.

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Until next time..

rgvdudeja
A techno manager by profession and a hardcore geek at heart. I love to poke my nose into tasks where other usually gave up on. My hobbies include, reading about Blockchain, Cryptocurrency and latest trends in tech industry, playing guitar and yes, memes!
http://pandatechiein.wordpress.com

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