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What Are the Best Strategies for Investing in Crypto?

By Evan Jones02/23/2023

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Anybody who invests is looking for the best strategy to make a profit. Experts and amateurs in every asset sector are always wondering the best time and way to buy to maximize long-term investments and profits. Everyone wants to get the most profit that they can. This means many investors are trying to time the bottom of the market, which is difficult. In a sector as volatile as crypto, this can be even more difficult.

The reality of trying to invest in cryptocurrency or any asset is that there is no one best way to do so. Plus, it’s nearly impossible to always time the market correctly, meaning that it’s best to instead have some sort of investment strategy that you’re going to follow. That’s why we’ve put together this guide of some of the best basic strategies for investing in crypto. Let’s dive in.

Five Basic Investment Strategies for Cryptocurrencies

Though there is no guaranteed way to invest in anything, there are certainly basic investment strategies that can be used by anyone.

The types of strategies described below require little to no knowledge of technical analysis and/or trading signals (more on them later in the guide). Each of them is a basic strategy that can be expanded upon using technical analysis once you’re more comfortable with the basics of investing. Let’s start with lump sum investing.

Lump Sum

Lump sum investing means buying a set amount of an asset all at once, using the full amount that you are looking to invest. When to use this sort of strategy depends on a variety of factors, and is often instead replaced by dollar cost averaging, which we’ll discuss next. Lump sum investing is only advisable in a few situations. 

First, if you’re buying a crypto asset at launch, buying in a lump sum is likely your best option, because prices often never get below the initial investor price unless the project fails. In this sort of situation, buying as much as you can in one chunk will often net you the most profit. This is the best use for lump sum investing strategies. 

Second, if you’re planning on holding the asset for a long time. This is because if you’re holding long-term, there’s less concern over price swings and initial buy-in. Just buy what you want and let it ride. 

Finally, if you think an asset has hit a bottom, or is close to it, then you can buy in a lump sum because you may not get a better value on your investment than at that moment. However, predicting a bottom is incredibly hard, which is why you’re more likely to dollar cost average.

Dollar Cost Averaging (DCA)

Dollar cost averaging, or DCA, is an investment strategy that involves buying set amounts of an asset over a period of time, rather than in one lump sum. This helps reduce the impact of crypto market volatility on the asset you purchase. By buying at different prices, you’re less exposed to volatile price moves like you would be with a lump sum purchase. You can also lower your overall cost per asset unit over the period of time you DCA.

Let’s look at an example. If you plan to buy $5,000 worth of Bitcoin you could split that amount and buy in 4 segments. You could buy $1250 at $22,000, $1250 at $18,000, $1250 at $19000 and $1250 at $20,000. Overall, this creates an average cost of $19,750. If instead you chose to invest all $5,000 in a lump sum when Bitcoin is at $22,000, you’d end up with a much higher buy-in price. You also get a lower profit if/when the price goes above your buy-in.

Dollar cost averaging is a good strategy regardless of whether you believe the market is currently a bull or bear. If it is a bear market, you’ll keep buying at lower and lower prices, decreasing your average cost. In a bull market, your average cost will likely rise, but it also presents an opportunity to sell and take some profits, alleviating any imbalances in purchasing price.

HODL

Hold On for Dear Life (HODL) is one of the most simple strategies for investing in crypto or any other investment vehicle. HODLing is just holding onto your investments, especially when you are significantly down on your initial investment. It’s also a strategy employed by traders who enter the market during a crash/bear market and are able to buy-in at cheaper rates.

Selling when the market is dropping, due to panic or fear, isn’t that advisable unless you need the funds, or are planning to buy back in at a lower price. However, this doesn’t always happen, you may sell right before the price starts to go back up. For example, those that sold Bitcoin when it dropped to about $15k in 2022 would have had to pay more to buy it back, as it hasn’t gone back down to those levels again in months. 

HODLing is likely best for cryptocurrencies in the top 25 by market cap. Not all cryptocurrencies recover from a crash and there are projects that ultimately fail. It’s probably not the best idea to hold onto some random spin-off asset like Dogelon Mars if the market crashes, though you could also move it into a more proven asset rather than just holding it. Holding onto assets that have proven themselves over multiple market cycles is your best bet.

Buy the Dip

Buying the dip is somewhat similar to dollar cost averaging, but rather than just consistently buying a set amount over a period of time, you just buy when you see the price go down to a level you like. 

For example, you could decide that every time Bitcoin goes down to $20k USD to buy another $100 worth. If the majority of the Bitcoin you’d previously purchased was around $25k or $30k, then by buying the dip you’ll be lowering your average cost and increasing potential profit. 

This is why it’s a similar strategy to a DCA. However, buying the dip is different from a DCA because you don’t keep buying as the price increases, only when it drops. This makes buying the dip a strategy for a bear market only, or a market that is volatile such as crypto is.  

Investing in Fundamentals

This investment strategy requires a little more due diligence than the others, though you should be doing due diligence regardless of your investment strategy. Investing in fundamentals means understanding the fundamental reasons for which an asset may become valuable over time. This means researching an asset and what it’s trying to accomplish, what use case it’s looking to solve. It also means investing in an asset regardless of market sentiment. 

For example, though Bitcoin’s price suffered greatly over the course of 2022, the fundamental ethos behind Bitcoin and the decentralization of financial systems hasn’t changed. This means that though the price may be down, the thesis for why it was a good investment hasn’t. Those who are bullish on Bitcoin long-term due to its fundamentals likely only saw the drop in Bitcoin’s price as an opportunity to buy. Whereas if you’re not confident in the fundamentals behind Bitcoin, you’d likely sell in an effort to reduce your losses.

Technical Analysis and Trading Signals

If and when you’re more comfortable with basic investment strategies, then you can get more into technical analysis and using trading signals. These are more advanced ways to invest and strategize. There are a variety of trading signals used in technical analysis such as the Relative Strength Index. 

The Relative Strength Index or RSI, is one of many trading signals used for technical analysis. It’s referred to as a momentum indicator. This means that it can signal whether an asset is currently being overbought or oversold. Traders can then use this information to determine if they should buy or sell that asset. The RSI is shown as a line graph on a scale of 0 to 100 (image below). Generally, an RSI reading of 70 or above indicates an asset may be in an overbought situation (time to sell). A reading of 30 or below indicates an asset may be in oversold condition (time to buy).

TradingView image of RSI

Though trading signals such as the RSI are somewhat complicated, there is also the option of copy and social trading on many crypto exchange platforms. 

Copy and Social Trading

Copy trading and social trading are ostensibly the same thing. Both social trading and copy trading allow you to copy and/or mirror another trader’s portfolio, whether their purchases and sales, asset distributions, or swaps. This allows you to take advantage of other peoples’ technical analysis and trading signal skills. There is generally some sort of commission paid to the trade you copy, but it’s a good way to take advantage of better trading strategies without having to do much learning yourself.

Closing Thoughts: Only Invest What You Can Afford to Lose

Investing in anything is a risk. Doing so without any sort of investment strategy is even riskier. That’s why it’s a good idea to learn about basic investment strategies.

Once you’re comfortable with the basics, you can get into technical analysis and using trading signals, or even just copy trading.

Article tags

Beginner
cryptocurrency
guide
trading
Evan Jones

Author

Evan entered the crypto scene in 2017, attracted to the many disruptive possibilities that blockchain could have on current world systems. He has a keen interest in decentralized services, payment processing, and viable NFT use cases such as event ticketing. He spends his days writing with his dog Kobe under his feet, if not on his lap.

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