Cryptocurrencies are a type of digital currency underpinned by blockchain architecture. The first cryptocurrency “Bitcoin” emerged in 2009, however, was widely overlooked. Today, it is one of the most popular investments in the market. Every day, a new hype about cryptocurrency flashes on the news channels, with new projects and trillions of dollars being invested and rolled out daily.
While crypto investors lose out a lot of money on scams like TerraUSD stablecoin, Squid Game tokens, etc, is it wise to invest your hard-earned money in crypto? The volatile nature of cryptocurrencies has made millions overnight for investors but has also made huge losses and drowned their investments underwater as well. The trick lies in how you plan to make your investment, and distribute your investments across assets.
If you are a beginner in trading, it is important to conduct thorough market research before betting your money on a particular asset. Often people invest their money simply out of FOMO (Fear of missing out). Crypto is a nerve-wracking industry and requires a lot of considerations before rolling your money. If you are new to the market, here is everything you need to know about investing in cryptocurrencies.
Table of Contents
What are the types of Cryptocurrencies that you can invest in?
What is Crypto Trading?
What are the Crypto Trading Strategies that You Can Implement to Stay in the Game?
What are the Advantages of Crypto Trading?
Do You Need a Crypto Broker for Trading?
Is Crypto Trading Precarious?
Bottomline
What are the types of Cryptocurrencies that you can invest in?
There are four different types of cryptocurrencies that users can invest in. These are:
1. Equity Tokens
The asset represents the equity of a property or the stock of a company with the terms stored in the underlying blockchain network. These tokens are similar to the conventional stocks with a basic difference in their registration on blockchain and the certificate or database available in traditional stocks. The blockchain also provides voting rights with the tokens.
For example, PayPal, and Tesla are two companies that can be invested in as tokenized stocks via blockchain technology.
2. Utility Tokens
To raise money for new projects, utility tokens are generally used. These tokens have specific purposes such as raising capital or providing access to new assets, and products. However, these tokens do not provide ownership.
For example, GNT (Golem) provides users to rent computing power systems, while BAT (Basic Attention Token) is used as a payment system.
3. Intrinsic Tokens
Intrinsic tokens are also known as “built-in” or “native” tokens which are virtual currencies, that consist of intrinsic value depending on the macroeconomic conditions. These tokens do not represent any asset.
For example, ETH or Ethereum, BTC, or bitcoin are two widely popular intrinsic coins.
4. Tokens Backed by Assets
Asset-backed tokens are simply the virtual form of IOUs. these tokens are usually underpinned by assets such as paper money, gold, gemstones, or art. Any user investing in the asset-backed tokens can claim the underlying assets to the issuer of the tokens.
For example, Any real asset can be tokenized such as crude oil, gold, etc.
Also Read: Does The Ethereum Merge Mark a Big Bang in The Crypto Universe?
What is Crypto Trading?
In the past few years, the inclusion of cryptocurrencies in financial investment portfolios has intensified. One of the pure digital assets that the asset managers of financial institutions must include is cryptocurrencies. Although the trading is similar to conventional trading, the natures of the two are distinctly different. The activity that includes buying and selling cryptocurrencies is known as “Crypto Trading”.
The aim to trade cryptos is to raise profits and looking at the history of market capitalization, crypto is an industry of quick growth and downfall. For example, the trading of cryptocurrency contract of differences also known as CFD is a contract between the seller and the buyer that determines when the position is closed, the buyer will pay the seller the difference amount in exchange for the token. This is known as cryptocurrency trading or exchange.
The investor can decide on the set of rules in crypto trading that is saved like an algorithm that is used during any exchange between the buyer and seller. In this article, we will have an in-depth understanding of crypto investment strategies that traders can use for a positive outcome.
What are the Crypto Trading Strategies that You Can Implement to Stay in the Game?
Crypto is a volatile market, yet one can easily mitigate the risks with efficient trading strategies. This way you can save yourself from making sudden judgments and losing out your money. Here we have some of the common strategies that are trending among crypto traders.
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Daily Trading
Daily trading describes buying and selling of assets on the same day within the trading hours. It is also known as intraday trading as the trading literally starts and completes on the same day. Users can day trade with bitcoins as well. The strategy behind daily trading is to make tiny market profits. Since crypto markets are highly volatile, daily trading minimizes the risks. These trading strategies require technical analysis and take a lot of time. It is best suited for professional experts.
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Buy and Hold
The buy and hold strategy often known as the HODLing strategy is derived from the misspelled word “Hold”. The process involves the investors buying a cryptocurrency and holding it for a long period of time to reap high benefits. The HODLing strategy helps investors to benefit from a long-term investment strategy perspective. Since the investors do not plan on limited period volatility, the buyers can minimize the risk of running at a loss by selling at a low price and buying at a high. Since the history of cryptocurrencies in comparison to gold and silver is low, it is subject to fraud, and money launderers. This is why some countries do not support cryptocurrencies, which affects the value of digital assets.
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Futures Trading Strategy
the crypto futures trading strategy involves signing up a contract between the buyer and seller at a particular amount based on predictions based on date and time in the future. The futures trading helps you with access to a wide range of cryptocurrencies that do not require ownership.
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Arbitrage
The traders depend on the arbitrage opportunity to earn high profits through crypto and bitcoin trading strategies. The trading method by which a trader buys cryptocurrencies from one market, and sells it in another is known as arbitrage trading.
The profit is the difference between the buying and selling prices. Because of the differences in trading volume, and liquidity traders can book the profits. The traders can register their accounts with a price for cryptocurrencies to take advantage of their trading opportunities. However, the take-home profit is lessened by the deposit fees, withdrawal fees, and trading fees.
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HFT Strategy
The HFT or high-frequency trading strategy consists of trading bots and algorithms that help in the quick entry and departure of a crypto asset. To understand such algorithms it is essential to understand the market mechanism with a solid base of science, and mathematics. Therefore, it is best for professional traders than novice players entering the market. Arbitrage, Liquidity detection, momentum trading, and market-making are the four types of high-frequency trading strategies.
The arbitrageurs look for the price range of identical assets on different platforms giving you the benefit of making profits. HFT is utilized by quant traders which is an algorithmic approach that benefits them from the bidding price discrepancy to buy and sell assets within seconds. The liquidity detection system depends on the market engagements of institutional investors and other traders’ activities.
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DCA Strategy
In DCA or Dollar cost averaging strategy, an amount is invested in small increments at regular intervals that allow the traders to make profits during favorable market conditions by keeping their assets vulnerable to market risks. In the following strategy, it is important to fix an amount of money that you can invest over time. This way, no matter the market conditions, you can keep investing until you achieve your goal. While using this strategy you can buy during both the high and low prices in the market. Since the strategy requires a long time, you need to pay extra fees if the invested amount is huge.
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Scalping Trading Method
The scalp traders utilize the market inefficiencies to make huge profits. However, the strategy requires investing a huge amount to make a profit. The scalper’s research on the volume levels and the history of the trends before deciding on the entry and exit point within one day. In spite of the risk, a professional investor will follow the rules to avoid poor trading choices. The traders using this strategy look for high liquidity markets to decide the time when to enter and exit the market.
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Range trading
One of the active investment approaches is the range trading strategy where the investor decides on a price to sell cryptocurrency within a given time.
For example, if the price of bitcoin is $35,000, and you predict the value to increase and reach up to $40,000 by next week. Then, you can predict the trade can take place between $35,000 to $40,000.
Also Read: Can Crypto Be a Game-Changer For the Cannabis Industry?
What are the Advantages of Crypto Trading?
Some of the advantages of trading cryptocurrencies are:
1. Volatile Market
The cryptocurrency market is volatile in nature and depends on macroeconomic conditions. While the market can bring the prices down overnight, it also rapidly increases the value.
2. New Asset Class
As cryptocurrencies are being recognized worldwide and developing, such as Ethereum, and Bitcoin there has been the emergence of several new assets. There have been several crypto investors who dedicatedly invest in the asset class.
3. Diversified Class
The enterprises and institutional investors tend to diversify their investments that have different prices at different market conditions. Cryptocurrencies are said to provide positive results when diversified especially during the bear phase.
4. Potential to Develop
Since the cryptocurrency sector is new, it has huge potential to develop in the future. There might be a huge change in the market that will change the experience of the traders investing in cryptocurrencies.
5. Available 24/7
Cryptocurrency is a decentralized market, and it never closes. The platform is always open, 24 hours, and seven days and does not transact from one place to another physically. The users can conduct transactions from anywhere and at any time around the world.
Do You Need a Crypto Broker for Trading?
Crypto trading is easy once you understand the market standards and trends. However, if you are a first-time investor crypto trading can be intimidating. Experts suggest hiring a crypto broker for new traders. A crypto broker acts as an intermediary between the buying and selling parties. Some brokers buy a large sum of cryptocurrencies to sell them on their own platforms as direct sellers.
The broker acts as an intermediary, and you place your order, and the broker finds you the best price on the crypto exchange. The anonymous nature of cryptocurrencies means that you don’t immediately need a broker, to conduct a trade. You can trade with any person, with no centralized exchange, zero fees, and no third party. The question is, do you need a crypto broker?
A crypto broker can be an added advantage to your trading experience. Firstly, with a broker, you can easily set up your profile on the exchange. When you plan to trade cryptos on your own, you may face technical issues. Since brokers already obtain their own exchange platform, the chances of a technical glitch are low. Moreover, a broker allows you to leverage which is to borrow funds to improve your position. A broker has new sets of tech tools that help them to conduct faster crypto trading, and at fair prices.
Is Crypto Trading Precarious?
Yes, crypto trading is highly risky because the currency is volatile. As history suggests, the currency value has dropped several numbers down from time to time. However, it is also true that the crypto market is the fastest growing market and can change your life overnight or in years.
Other than the volatility issue, the crypto industry has no regulatory framework and the anonymous nature makes it prone to hacks, and the best arena for cybercriminals. Since it has no centralized authority, if you lose your money, there is no way to get it back, unlike traditional banks. Although the market is highly risky, the profit margins are worth a try.
Bottomline
The fact that the market itself is volatile, and the concern of climate surrounding it makes the asset speculative. Some of the popular cryptocurrencies that have evolved over the decades, such as Bitcoin are considered highly risky. Although the market has gained popularity over the years, there are several issues that are yet to be solved. The cybercrimes have led governments around the world to impose regulations on the industry, which trembles the trust of investors and fluctuates the price of the currencies.
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