Cryptocurrency has evolved into more than just a new alternative to physical money. The first-ever cryptocurrency, Bitcoin, brought the world closer to blockchain, which is undoubtedly one of the biggest technological interventions in recent times. Over the course of time, many other cryptocurrencies arrived in the market and offered lucrative financial prospects for investors. Thus, more individuals and companies are showing their interest in cryptocurrency investment. However, it is important to check certain factors before you invest in cryptocurrency, such as the feasible strategies and potential risks associated with the same.
Cryptocurrencies offer an encrypted variant of digital currency, with trading markets open at all times throughout the world. At the same time, they are also highly volatile. Therefore, you should practice adequate caution and learn about cryptocurrency investment strategies, which can help you capitalize on crypto markets. Let us learn about some strategies which you can implement for investing in crypto in the following discussion. In addition, you can also identify the risks associated with investing in crypto so that you can stay on the safe side.
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Popular Strategies for Investing in Cryptocurrency
One of the first things you would find in any cryptocurrency investment guide would point towards the need for planning. Just like any other venture, you would need adequate knowledge and strategic planning before investing in crypto. You need to understand the principles underlying crypto investments alongside the ideal strategies for profitable investments.
In addition, it is also important to note that the strategies for investing in cryptocurrency can vary from investor to investor. The financial goals and the risk appetite of investors play a crucial role in defining the ideal investment strategies. So, what are the possible options among strategies for investments in cryptocurrency? Here are some promising answers you may want to try out.
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Day Trading
The most common cryptocurrency strategy would be day trading, generally preferred by short-term traders. Day trading involves close and active observation of the crypto market for determining the ideal approaches for trading. You would need loads of effort and dedication to monitor the market trends for the best results in day trading.
The interesting highlight of day trading is the fact that traders focus on accumulating small profits for landing up with a larger amount. Day trading is a promising strategy for investing in cryptocurrency by capitalizing on the instability of stocks. In addition, traders are also continuously updated about the market trends and actively place multiple orders in one day.
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Swing Trading
The next reliable answer for “how to invest in cryptocurrency” would take you to swing trading. It is a unique process that involves a graphic representation of instability and fluctuation in prices for identifying the trending stocks. Investors could discover the benefits of precision as they could find the trending stocks for specific time intervals. Just like in traditional stocks, the prices of different crypto assets could differ in both directions, thereby resulting in a rise or fall.
The swing trading strategy to invest in cryptocurrency focuses on identifying the recurring time frame of the price behavior. Subsequently, investors could use the information for making the decision to buy or sell a specific cryptocurrency. However, swing trading is a suitable approach for investments in crypto only for experienced traders. Investors with high levels of fluency in identification and assessment of charts and indicators can perform well in swing trading. You should have the knowledge and capabilities for understanding the peaks and drops precisely to predict accurate patterns.
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Scalping
Another favorable cryptocurrency strategy for short-term investments would include scalping. Traders purchase and sell crypto assets quickly within a day by trading in penny stocks which serve the strategy perfectly. Traders can have the assurance of minimum profits with free commission brokerage in scalping. However, investors should focus on only one currency pair or position at specific time points to ensure a better probability of success.
The scalping strategy is suitable for possibilities of small profits on transactions alongside presenting minimal risks. New crypto investors could use scalping to learn the basics of cryptocurrency investment and develop experience in monitoring market trends. You can start scalping by investing a small number of funds in the beginning, thereby offering a feasible gateway to crypto investment.
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Balanced Portfolio
The most crucial aspect of a cryptocurrency guide would refer to the evolution of crypto trading. Different countries are openly accepting crypto transactions, while there are many which harbor a lot of skepticism. As of now, many central banks all over the world are formulating new approaches for regulation of digital currencies. However, crypto trading is still a highly risky venture for the obvious reason of volatility.
A balanced portfolio shows how to invest in cryptocurrency without worrying about volatility of cryptocurrencies. A balanced portfolio with different types of cryptocurrencies such as Bitcoin, Ethereum, Dogecoin, and others can help in addressing volatility. Investors also have the flexibility to maintain fixed amounts of regular investments in various cryptocurrencies in a balanced portfolio. As a result, you can identify the effective distribution of risk associated with volatility of different cryptocurrencies in the portfolio.
The foremost strength of a balanced portfolio as a cryptocurrency strategy for long-term investments is the high-risk appetite. The systematic distribution of risk across all the cryptocurrencies in your portfolio can improve the possibilities for obtaining favorable long-term returns.
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Arbitrage Trading
You can also choose to invest in cryptocurrency with arbitrage trading. The strategy basically involves purchasing crypto in one market and selling it in another. The difference between the purchasing and selling price of crypto refers to ‘spread’ and determines the profit for investors.
So, how does buying and selling the same cryptocurrency in different markets earn profits? The differences in trading volume and liquidity of the cryptocurrency on the different platforms help investors achieve a solid profit. However, it is important to identify the exchanges which depict large price differences for the cryptocurrency you want to trade.
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Risks Associated with Cryptocurrency Investment
The different strategies for investment in cryptocurrency showcase the possibilities for making profits on cryptocurrencies. However, you can identify a varying range of cryptocurrency risks that are unique for different stakeholders. Financial institutions, investors as well as non-financial enterprises encounter varying risks in the trading cycle.
From a general perspective of an investor, the biggest risk is the loss of value of the cryptocurrency. In addition, the technical aspect of cryptocurrencies also brings the possibility of technical risks in crypto investments. Another prominent entry among risks in a cryptocurrency investment guide would refer to legal risks. Here are some of the prominent risks you should be aware of before investing your money in crypto.
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Loss of Trust
The formidable factor underlying the volatility risk of cryptocurrency would be the trust in cryptocurrencies. How long would the trust in cryptocurrencies last? As of now, crypto is evolving, and the industry has shown a lot of uncertainty. In addition, online portals have registered massive volumes of trading activity by speculators only with a trivial use of cryptocurrencies.
The market participants place the value on crypto during transactions, thereby presenting one of the notable cryptocurrency risks for investment. What if people don’t consider specific crypto valid anymore? It would ultimately collapse all the trading activities leading to a drop in value.
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Technical Risks
Technical fluency is an inevitable necessity to invest in cryptocurrency with assurance of safeguards from technical risks. You store cryptocurrencies in digital wallets, and only the owners of public keys and private keys for the digital wallet can control the crypto in the wallet. Without proper knowledge of best practices for safeguarding private keys, you can lose access to your crypto assets.
On top of it, you may have to entrust third parties for safeguarding your cryptocurrencies, such as in centralized exchanges. The instances of malicious activity in the cryptocurrency space present a formidable concern in technical risks for cryptocurrency investment. Furthermore, concentration of power through creation of mining pools and other techniques can also increase risks for investors.
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Legal Risks
The next critical set of cryptocurrency risks for investment would focus on legal risks, especially pertaining to crypto trading regulations and taxation of cryptocurrencies. As of now, there is no clear consensus among different regulators on the legal status of cryptocurrencies.
In addition, the concerns of taxation also present formidable risks for investing in cryptocurrency due to uncertainty in their definition. The tax treatment of cryptocurrencies lands up in a dilemma between considering them as digital currencies or assets. Therefore, crypto investors would need appropriate legal and tax advice regarding the risks for crypto investment in their home jurisdiction.
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Final Words
On a final note, it is quite clear that you can invest in crypto only with an understanding of what to expect. Proper strategic planning and insights on potential risks are the essential highlights for successful crypto investments. If you are capable of identifying the strategy which can help you reap the best returns, then you are halfway there.
With a detailed understanding of your requirements and the level of your experience as a crypto investor, you can choose a cryptocurrency strategy for short-term or long-term investments. Subsequently, you need to develop a clear impression of the varying range of risks associated with investments in crypto. Once you have all these factors in place, you can try your chances as a crypto investor. Learn more about cryptocurrencies and the best practices for investment right now.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!
