In just a little over a decade, cryptocurrencies have grown to become a rewarding asset class. Household names like Bitcoin and Ethereum have reached exponential growth, while thousands of digital currencies have cropped up in recent years. Of course, not all currencies are created equal, and some have turned out to be a lot more volatile than the rest.
In crypto, there are as many risks as there are opportunities. So it’s important to understand the different investing strategies so you can make the most of crypto and invest your hard-earned money according to your risk tolerance.
Invest in crypto using these 5 strategies
Here are five of the most effective strategies to build wealth with crypto:
Dollar-Cost Averaging (DCA)
Dollar-cost averaging (DCA) is one of the most popular ways to invest in volatile markets such as crypto. This strategy involves investing a fixed amount of money at regular intervals rather than a big sum at once, regardless if the market is bearish or bullish. This approach allows investors to weather rapid market swings. The risks are lower in this approach as it focuses on steady, long-term gains rather than quick, handsome returns. Timing is a key part of crypto investing, and if you buy or sell at the wrong time, you could risk losing your money. But by dollar-cost averaging, you can minimize this risk while still maximizing opportunities to make a profit.
Buy and hold
Buy and hold, also called HODL (hold on for dear life) by many crypto investors, is a strategy that has gained traction in recent years. This approach involves buying a digital asset and then holding onto it for a long time, tucked away in your digital wallet. It’s popular among amateur investors as it doesn’t involve a lot of trading. But seasoned investors swear by it as well as it’s a low-risk, high reward strategy.
Yield and hold
Yield and hold is another investment strategy suitable for those with a low- or neutral-risk appetite. The approach works by earning a yield through holding cryptocurrency over a certain period, in this case, lending it to a liquidity pool. By doing so, you can get paid an attractive annual percentage yield on your holdings. In other words, it’s a good way to earn passive income, similar to how you hold funds in a savings account and earn interest on your existing balance.
Elliott Wave Theory
As mentioned earlier, timing the market is essential if you wish to earn significant sums in crypto investing. Timing the market optimally allows you to buy low and sell high. Elliott Wave Theory works by analyzing long-term trends in price movements. By forecasting the price cycles of tokens, an investor would know when to get in and out to reduce losses and maximize gains. However, due diligence and technical know-how are needed for this strategy to work.
Cryptocurrency exchange-traded funds (ETFs) employ the traditional approach of putting your money in a pooled investment security that operates like a mutual fund. This strategy lets you take advantage of diversified crypto-related assets while managing risk. What makes ETFs less risky is that these funds are typically pegged to the performance of major cryptocurrencies like ETH and BTC. It also means that you don’t need to do much as the ETF will manage your investment on your behalf. A big downside to this approach is that funds tend to charge high management fees.
Token trumps strategy in crypto
Regardless of which investment strategy you employ, it wouldn’t matter if you choose the wrong tokens to invest in. Crypto projects rise and fall every day, so it’s important that you fully understand a cryptocurrency’s tokenomics, utility, price history, and future roadmap before deciding to invest in it. It can be tempting to invest in whatever currency or project is trending at the moment but exercise due diligence so you don’t miss the green and red flags.