13 Tips for Designing a Crypto Investment Strategy

The value of the crypto market hovers around $1T. It’s impossible not to see the potential that crypto has. Many speculators and investors are seeing it as an asset class they can’t afford to leave out of their portfolios.

From the outside looking in, crypto is often seen as volatile ripe with bad actors and hackers. What they’re missing though is the same happens in the traditional markets too. The smart investor knows how to come up with a crypto investment strategy that works in their favor.

With so many projects, FUD (fear, uncertainty, doubt), and FOMO (fear of missing out), it’s easy for a novice investor to feel lost. Let us be your shepherd. Read our guide to learn 13 tips for designing a crypto investment strategy.

1. Mix of Storage

The first rule of thumb when investing in crypto is to make sure you safely store it.

You can hold your crypto in either a hot or cold wallet.

A hot wallet is primarily used for convenience purposes. You can download one to your mobile device or computer. While they are more convenient, they are more vulnerable since they are connected to the internet.

Only hold what you’re willing to lose with a hot wallet. You can treat it more like cash in this sense. You could also have hot wallets when you need to make fast transactions.

A cold wallet is a physical device (similar to a thumb drive or external hard drive) to hold your crypto. These are ideal for long-term holds or storage of value (e.g., Bitcoin).

2. Liquidity

When determining your crypto investment strategy, liquidity is of utmost importance. The easier and quicker you can convert into cash the better.

You may want to enter and exit a trade quickly when you invest in bitcoin or other cryptocurrencies.

Liquidity is largely due to the supply and demand of a crypto asset. When people are trading the cryptocurrency, it’ll be that much easier to cash out. Pay attention to the trading volume as well. 

3. Volatility

Many outside spectators of the crypto market see it as highly volatile and will not invest for that reason alone. While yes the crypto is volatile at times, you may be missing out on major gains.

It’s important to see both sides of the coin. For example, seeing the positivity in volatility means taking advantage of when prices are low. Buy cryptocurrency to add to your portfolio during the bear market.

When the market is bullish, and on an upswing again, you be pleased with this crypto investment strategy.

4. Invest What You Can Afford

You never want to bite off more than you can chew. This means you never want to put in more than you’re willing to lose.

When investing in crypto and traditional markets, there will always be some level of uncertainty and risk involved. When you devise your crypto investment strategy, have your risk tolerance at the forefront.

When learning how to invest in crypto, you will soon understand that these risks are coupled with potentially great returns. This is due to the sometimes volatile nature of crypto markets.

Generally speaking, Bitcoin and Ethereum are a lot less volatile these days. When you go into the smaller market caps of altcoins, they’ll be a lot riskier but have a higher chance of a greater return.

View here to see how you can buy cryptocurrency on the go with Bitcoin ATMs.

5. Take Profits

You shouldn’t feel guilty about taking profits on your gains. When it comes to cryptocurrency investing, a large portion is about profiting.

This happens when an investor sees that one or some of their coins are in the green and moves them into fiat. Alternatively, if you don’t want to move out of the crypto markets entirely, you could take profits with something more stable like bitcoin, either, or stablecoins. This way, you won’t have to dive into your savings to start investing in cryptocurrency.

When the crypto markets are bearish, then you can dip your profits back in to buy cryptocurrency again!

6. Diversify

Putting all your eggs in one basket is not a crypto investment strategy we would advocate for. When you invest in crypto, aim to have a diversified portfolio. This will lower your chances of risk.

When you invest in a bunch of different projects, tokens, NFTs (non-fungible tokens), cryptocurrencies, etc. you won’t have to worry so much when one or a few are in the red. By spreading your money around, you can have some that are fairly stable and others that you view as speculative.

7. Dollar-Cost Average

Dollar-cost averaging is a crypto investment strategy no matter the current state of the market. The way it works is by consistently buying crypto at a fixed rate over an extended period. Even by putting in $100 every week or month, you’ll see your crypto start to accumulate.

It’s best to dollar cost average with stable cryptocurrencies like bitcoin or ether, but you can do it with any crypto asset.

Dollar-cost averaging is a wise crypto investment strategy because it removes emotion from the equation. This is a good way to cut down on risks, too since you’ll be putting in the same amount and won’t have to worry about major price swings or volatility.

Your long-term crypto holdings will stay on track with a dollar cost averaging approach.

8. Lump Sum

Lump sum investing is the opposite of dollar cost averaging. Rather than investing a small amount consistently over time, here you’re investing in one lump sum.

For example, let’s say you received a stimulus check during the pandemic. You could put the whole amount to invest in bitcoin. In many ways, this crypto investment strategy is better than dollar cost averaging since you may otherwise lose out on potential profits.

9. Buy Fractions of a Coin

Some outsiders to the crypto space think you have to buy a whole bitcoin or a whole ether. This couldn’t be further from the truth. One of the beautiful things about crypto is that you can buy fractions of a coin.

You can buy percentages of a coin with as little as you’d like. For example, a common phrase you’ll hear is “stack sats”. Sats are short for satoshis, which is 100 millionth of a bitcoin.

10. Buy and Hodl

Sometimes the most effective crypto investment strategy is a simple one. When you buy and hodl you are looking for long-term investments. These are investments that have performed well over time, and you aren’t worried that they will turn sour anytime soon.

Take a look at charts and white papers, and vet the developers. Rather than consistently trading, what you’re doing here is buying and having “diamond hands.” This means that you are in it for the long haul.

Coins like bitcoin and ether are again great options here. See what other coins have stood the test of time and invest in them.

Many people think hodl stands for “hold on for dear life.” It was only a typo for hold on a Bitcoin forum.

Buying and holding bitcoin and other cryptocurrencies are a great hedge against inflation too.

11. Earning a Yield

This crypto investment strategy is similar to buying and hodling. The only difference is that when you park your money in a crypto asset, you’ll earn a yield.

Investors will stake their crypto with Proof-of-Stake (PoS) coins. When you do, you lock up your cryptocurrency to participate in running the blockchain and secure the network.

You could treat some cryptocurrencies as savings accounts. Many of them will offer much higher yields than traditional banks. Think of it as a great way to earn passive income on your holdings.

12. Value

Value investing is where you are looking at the long-term value of a cryptocurrency. It is when you see potential profits in undervalued crypto assets.

The best example of this is Bitcoin. When Bitcoin first began in 2009, the cryptocurrency was largely undervalued. Many investors took advantage of the low price point and are reaping the benefits today.

This is where your research skills will come in handy. While it can be tough to seek out undervalued coins, it is well worth your time. This will only better you as an investor in the crypto markets.

13. Crypto Index Funds

With so many different cryptocurrencies to choose from, it can be difficult to know what to invest in. This is the beauty of crypto index funds.

A crypto index fund is similar to an ETF (Exchange Traded Fund). It is a set of different cryptocurrencies you can invest in at once. This way you won’t have to spend time researching and finding new crypto assets yourself.

This is recommended for beginners since they won’t have to worry about market volatility. It is a great way to start diversifying your portfolio.

What Crypto Investment Strategy Will You Choose?

You’ll want to choose a crypto investment strategy that is right for you. While you may want to compare notes with other investors, you want to stick to your guns. Choose something you are comfortable with and watch your crypto grow.

As the crypto market and technology are ever evolving, it can feel daunting at times. Do not let this overwhelm you though. Read our blog to get the inside scoop on all things crypto.