Top 3 crypto investment strategies

The amount of investment strategies an individual could employ almost rivals the number of cryptocurrencies you could buy. Most who are new to crypto investing can be overwhelmed with information on what investment strategy would be best.

Whilst there is no perfect strategy, there are many which suit those who are starting out, or are ready to get more involved with a strategy besides “buying low and selling high”. Here are the top 3, ordered easiest to hardest, of the strategies to consider commencing.

Dollar Cost Averaging (DCA)

Dollar cost averaging crypto involves buying a set amount of an asset at a particular time interval to minimize the risk of investing. For example, an investor has $500 to invest, instead of buying Bitcoin in a lump sum, and the price of that asset then potentially losing value, they would instead buy $10 of Bitcoin every Thursday, buying the highs and lows of the price over the year and spreading the risk. 

The DCA strategy is better for longer term investors, investors with small amounts of capital, or those looking to minimize investment risk. This strategy requires a longer time in the market to average out and neutralize the effects of market volatility, it’s suitable for those who only have, or only want to invest, a small amount of money into the market also.

Pros:

• Less risky investment as buying both the highs and lows to average out gains.
• Can use small amounts of capital – good for those with only a small amount to invest.
• Easy to implement, requiring no analysis, emotion, or waiting.

Cons:

• Buying the highs and lows can provide fewer gains.
• Cash not in the market is not making profit if markets are gaining.

Staking

Staking is when an investor “locks up” or delegates their crypto to earn rewards, usually rewards are a percentage of the crypto they have staked. How this works is that the blockchain of some cryptocurrencies allow users to validate transactions and earn a portion of the fees. Users will stake their crypto as collateral, and in return for successfully validating the network, they will receive a percentage of the fees other users pay.

Staking is similar to a “buy and hold” strategy, where an investor looks to gain over the longer term by retaining assets until the price rises to a level they’re ready to sell at. The difference is, staking can be used as a form of passive income with the rewards cashed out, or they can be reinvested into staking to earn even higher rewards.

As the investor won’t be able to sell the staked asset if the price drops, staking will be a strategy better suited to medium and long term investors. Some lockup periods for staking last around 3 months or longer, which would place this in a longer term focused strategy regardless.

Pros:

If already planning to buy and hold, staking can provide even more of an asset for free.

Most platforms have made this process very easy with little risk.

Large earning potential as some crypto rewards over 100% per year.

Cons:

Unable to sell the assets once staked.

If running a validator node, losses can be incurred for incorrect validations.

Swing trading

Swing trading is a strategy where an investor aims to gain on a price movement of an asset over a short to medium term period, typically a few weeks to a few months. Swing traders usually aim to invest during periods when there is a strong trend, like consistent and rapidly rising prices, or even when prices are dropping, in order to “short” the market.

There are many tactics that swing traders employ, and this strategy involves a high amount of knowledge of markets, chart patterns, and technical analysis. Using tools like trend lines, swing traders look for patterns for confirmation on when to set up and then sell their trades in order to profit.

Swing trading is most suited for short and medium term investors looking for a heavy and active involvement in their investments, who are willing to dedicate time to studying markets, charts, and related information on the market and asset.

Pros:

• Requires a lot less thinking and time compared to day trading.
• Can switch strategies to a “buy and hold” or staking strategy if incorrect.
• Larger gains can be made more quickly in comparison to the other trading strategies mentioned.

Cons:

• Very difficult, requires a high level of knowledge across a variety of tools and markets.
• Takes quite a while to understand and master.
• Easy to get wrong, potentially resulting in large losses, even when mastered.