Cryptocurrencies are a kind of digital assets that can be bought and sold. The crypto does not give legal ownership of a company but the digital asset will rise in value. In this regard, cryptocurrencies differ from stocks. There are many reasons why cryptocurrencies are better than traditional modes of investment. The foremost reason is that centralized agencies do not determine the value of cryptocurrencies. However, there are several ways of investing in cryptocurrency and it is essential to know the pros and cons of each.
Dollar Cost Averaging (DCA)
Investors often have different goals and some prioritize savings over short-term gains. The Dollar Cost Averaging strategy is one of the most common strategies to increase the amount of savings. In this strategy, people invest a definite amount into cryptocurrencies at intervals. This system is similar to the strategy used in investing in traditional forms of investment like fixed plans or Systematic Investment Plans (SIP). DCA will help in stabilizing cryptocurrency investments and can withstand uncertainties of the market better.
Buy and Hold
In recent times, buy and hold is indisputably the most common cryptocurrency investment strategy. The investors hold onto their crypto investments for the long term. It is a fact that most investors use this strategy as a part of their long-term financial planning. However, this strategy is a test of the investor’s resilience, beliefs, and patience. This strategy is popularly known as ‘Hold on Dear Life or HODL’.
Day Trading
Day Trading is the exact opposite of the ‘Buy and Hold’ strategy. In this strategy, the investors concentrate on small changes in the market and customize their activities to extract quick gains. In this strategy, the investors purchase and sell and the trading session happens on the same day. This strategy is gaining momentum because many believe that the rewards are faster.
Buy Low, Sell High
This strategy is gaining widespread popularity because many crypto investors perceive it to be very simple. They use similar strategies for buying stocks, despite knowing the obvious differences. People invest whenever the price is low and hold the token till its price rises significantly. It, therefore, results in huge profits. However, this strategy is complicated and one may need help from algorithms and tools to analyze the prices and portfolios. Usually, investors rely upon monthly or weekly moving averages.
Arbitrage Trading
In arbitrage trading, the investors take more risks and purchase cryptocurrencies on several platforms. Investors usually buy cryptos whenever the prices are low, compare them, and then quickly sell the assets whenever the prices increase when the crypto was purchased from. While selling, they usually choose other platforms.
Also Read-US House of Representatives Pass Crypto Regulation Bill
Bottom Line
There is no perfect way for crypto investments in the world. This is because the preferences, risk-taking capabilities, and short-term, and long-term capabilities vary significantly. It is therefore worth recommending that every cryptocurrency investor should thoroughly analyze the risks and gains associated with each of these strategies and then proceed accordingly. For long-term crypto investors, patience, resilience, and foresight are necessary.
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