7 Best Cryptocurrency Investing Strategies

While the crypto market has been on the decline since the beginning of the year, some crypto assets have historically been high performers. Whether you’re a beginner or an expert, these cryptocurrency investing strategies can lower your risk and put you ahead of the game.

Choose the right mix of storage.

When managing your crypto, safe storage is at the top of the list.

Experts say it’s best to store a majority of your cryptocurrency in a cold wallet (cold wallets are not connected to the internet)to prevent hackers from gaining access. It’s convenient to have some crypto in a hot wallet (wallets that are connected to the internet, e.g software and web wallets), though, to move in and out of transactions quickly. A helpful guideline is to hold roughly 80% of long-term funds inside a cold wallet, says Yubo Ruan, CEO and founder of Parallel Finance, a decentralized lending and staking protocol on Polkadot. The hot wallet can be used for short-term moves.

Prioritize Liquidity.

Liquidity refers to how easily an asset can be converted to cash while maintaining its value, and it is an important metric when deciding how and what to invest in the crypto market. The crypto market moves fast, so traders need to be able to move in and out of positions quickly. This means there has to be both supply and demand for the cryptocurrency, so you don’t end up stuck with a cryptocurrency that you cannot sell. When measuring liquidity, it can be helpful to look at trading volume or how much cryptocurrency has been bought and sold, as well as investors’ overall interest in the asset.

Harness volatility.

The volatility of the crypto market can be a good thing for traders who capitalize on these price swings, but for long term investors, it can be difficult to manage. Volatility is actually good for trading cryptocurrency, Greenberg says, but before jumping in, it’s best to know your tolerance for risk as an investor. It’s also important to pay close attention to what’s happening in the market by following the news , blockchain updates and historical charts related to your trades, she says.

Invest What you can afford to lose

If you cannot afford the risk of losing your entire cryptocurrency investment, you should not invest in it. Risk tolerance in the cryptocurrency market is determined by how much you earn and your current risk profile, according to Ruan. “A person new to crypto should consider allocating around 5% of their income to the crypto market, a crypto enthusiast should consider allocating around 10% of their income to crypto, and a DeFi expert or trader should probably consider allocating 20% or more of their income to crypto,” he says.

Take your gains often.

According to experts, crypto market participants should take profits frequently. When it comes time to take profits, crypto investors are frequently faced with the dilemma that a cryptocurrency’s price could fall or rise, but it’s best to have a dependable profit-taking strategy. “A lot of people just buy and hold for an indefinite period of time, and they’re at the mercy of news, memes, and celebrity tweets,” Greenberg adds. Establish a clear reason and goals for trading cryptocurrency in the first place, and define your entry and exit points for trades.

Diversify.

In the world of cryptocurrency, putting all of your eggs in one basket is not a good strategy. To reduce risk in crypto investing, diversify your crypto portfolio by investing in a variety of coins and crypto projects. Diversification enables cryptocurrency investors to allocate their funds to both relatively stable and speculative assets. It is critical to diversify among various digital assets associated with cryptocurrency and blockchain, such as the internet of things, non-fungible tokens, and DeFi projects.

Use Dollar Cost Averaging.

Dollar-cost averaging is a strategy that involves investing a fixed amount of money on a consistent basis rather than piling in all at once. This way, investors can capitalize on market swings, because it’s impossible to predict how crypto assets will perform in the future given the asset’s volatility, experts say. Buying when the crypto market is down gives investors the chance to accumulate it at a cheaper value, and using dollar-cost averaging can keep responses to hype in check.

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