- Dollar cost averaging (DCA) is a strategy that involves investing regular, fixed amounts of money into an asset, as opposed to timing investments around the market trends.
- “Buying the dip” is a common strategy in which the investor purchases an asset when its unit price is lower than average, under the assumption that the price of the asset will rise again in the future.
- HODL, or “hold on for dear life” involves buying an asset and holding it as a long-term investment regardless of market volatility or price changes.
- Doing your own research (DYOR) should precede the implementation of any investment strategy—long or short term. This includes—but is not limited to—reading the white paper, learning about the founder, assessing real-world utility, developer & investor adoption, price history, and ranking.
"Buy low, sell high."
If only it could be so easy.
The old adage “it's not about timing the market, but about time in the market,” has time and time again held up. And while there is no one-sized fits all approach to crypto investing, a sound crypto investment strategy puts you in the driver’s seat to grow your portfolio.
Remove emotion (and temptation) as we cover some of the most common short-term and long-term strategies used by crypto investors today, and show you how to find an asset worth investing in.
Short for ‘hold on for dear life’, this strategy involves buying crypto and holding on to it for the long term, riding the waves of volatility in expectation of high returns over a long-term horizon. The popular crypto native term is derived from a misspelling of the word “hold”.
HODLing is popular among beginner, intermediate, and advanced investors. If considering this strategy, doing thorough asset research is even more important, as it may be years before you exit your position in the market.
Dollar Cost Averaging (DCA)
Using the DCA method, investors continue to invest fixed amounts of money into a crypto asset at regular time intervals (e.g. weekly, fortnightly, monthly). The investment is made regardless of the asset's price at the time of investing.
Markets can be cyclical. After every bull market follows a period of decline. Bear markets eventually become bullish. Rather than trying to predict these cycles, DCA investors will purchase the same amount of crypto regardless if the price is high or low. This strategy could help nullify the impacts of volatility over time. It may also be ideal for investors interested in a more passive, set it and forget it style of investing.
If you’re a risk-averse investor, diversification may be a viable strategy to help you reach your investment goals. This strategy involves holding various types of crypto assets—usually across multiple industries—within a portfolio.
Holding a variety of assets helps the investor mitigate market risk since all their eggs aren’t concentrated in one basket. Diversification could help an investor weather times of extreme price volatility, as losses from one coin can be offset by potential gains of other assets within the portfolio.
Also, consider holding some stablecoins to help provide liquidity for your portfolio. Stablecoins, like Tether (USDT) & USD Coin (USDC), attempt to offer relative price stability. Their market value is usually pegged to the value of a stable asset, like USD, the Euro or gold. Unlike other crypto assets, where prices can fluctuate wildly, stablecoins are designed to maintain a stable value over time. They are an essential weapon to take advantage of market opportunities.
Remember, if using this strategy, be weary of over-diversification, as this could lead to a portfolio that only mirrors market trends.
Medium to Short-Term Investing
The following techniques are more advanced and involve sound research and a stroke of objectivity in order to execute properly. As with any investment, proper research will help you make the most informed investment.
Buying The Dip
During bear markets, it’s not uncommon to hear the phrase “Is the bottom in?” thrown around by pundits, press, and crypto enthusiasts alike. The bottom, which refers to the lowest predicted price point of an asset (or the market in general) can be difficult for any seasoned investor to predict. Buying the dip is a common strategy that investors use to capitalise on these downward trends.
The strategy is simple. It involves an investor purchasing an asset when prices are lower than usual. The goal is to acquire more crypto at this low price, under the assumption that the investor can profit if/when the price rises.
When prices drop, it could lead to panic and emotions running high. If your research indicates that the downward trend of an asset could only be temporary, this strategy might be worth trying in the short term.
Buying the dip often goes against overall market sentiment, as investors must be greedy when the wider market is fearful, and fearful when others start buying out of greed. If you can learn how to remove your emotions from the investing equation, this strategy might be ideal for you.
Out of all the strategies listed, day trading is considered the most short-term strategy an investor can implement.
A strategy that has its roots in traditional markets, day trading is an advanced investment method that involves frequent trades on one or multiple assets throughout the course of the day. It is a high-risk, potentially high-reward strategy that seeks to leverage the inherent volatility of crypto markets to turn a profit.
Crypto markets are 24/7, unlike traditional markets. Day traders usually have a very deep understanding of crypto, blockchain technology, and market trends to adapt to an ever-changing market. Day trading can seem like an attractive investment strategy for those who prefer a more active approach to investing. It’s worth noting that this strategy carries significant risks, no matter your skill level.
Before You Invest
Now that you have a few investment strategies that you can try, it’s time to select what assets to invest in.
How do you choose? It all starts with research.
Do Your Own Research (DYOR) is a popular motif within the crypto community. It’s a strong reminder for investors to follow the facts, not their emotions or the opinions of others. Here are a few things to look out for when researching an asset to invest in.
The white paper is a key document for all crypto projects. Without it, the wider public will not have a thorough understanding of the project and its goals.
A crypto white paper explains what a project is about, what problems it intends to solve, and how it intends to solve these problems.
While reading the white paper, highlight any red flags such as: a lack of real-world utility, or legality issues. These red flags could hint at larger problems later on in the life cycle of the project.
Founders and Developers
After reading up on the project, search for any background information you can find about the project’s founder(s). Do they have experience in Web3? If they don’t have previous crypto experience, have they worked on successful related projects in other industries?
A founder’s identity by no means needs to be public. But it’s worth noting that scams are common in crypto, with bad actors using the veil of anonymity to carry out hacks. Having a public, identifiable founder can lend credibility to a project.
If you want to take your research a bit further, read up on the expertise and track record of developers attached to the project. The team should have the experience needed to achieve the goals of the project.
Crypto markets are volatile.
Rankings - commonly based on market cap - alone aren’t enough to determine the viability of an investment.
But including rankings as part of your overall research is a factual data point that can help you make an objective decision. Traders and investors use market cap as a metric to understand the value or value potential of a particular cryptocurrency. The size of an assets market cap can help investors make inferences about the risk profile of a particular asset, its potential for long-term growth, and its market dominance.
The top crypto assets are ranked as such for a reason. Look at these projects and the value they are offering to investors. It may give you some insight into the types of projects you may want to invest in.
A coin may be performing well right now, but is it worth your time and money? Take time to research the underlying project associated with a coin. What blockchain is it on? What are the use cases for the coin?
Projects that solve a problem, disrupt an industry, or provide real-world utility are eventually priced by the value they provide.
Do you see the coin having a utility that could be valuable now or in the future? Understanding the underlying goals of the project could give insight into the potential value for investment.
Liquidity, or the ability for an asset to be quickly converted into cash or some other asset without major price fluctuations, is something else to consider when investing. Some larger cap coins (like Bitcoin, Ethereum, or Solana) tend to be more liquid than smaller cap coins.
Stablecoins are usually quite liquid as well. But it’s worth noting that stablecoins operate more like digital everyday cash. While stablecoins are not commonly used as vehicles for portfolio growth, they do provide investors with an opportunity to capture and retain portfolio profits.
Volume is often used to gauge interest in a particular asset. Higher volumes could contribute to overall higher market liquidity. When assessing this measurement for a particular coin, weigh up the volume against a select time period. Trending coins could have a high volume one day and see a drop in trading once public interest dies down.
The number of active addresses on a blockchain is a fantastic indicator of a particular blockchain’s daily users, shining a direct light on a project’s potential for real-world adoption. Tools like Messari make it possible to easily access key adoption indicators such as addresses, inventories and data related to miners.
As a working example, projects like Ethereum - with use cases spanning beyond digital currency to Non-fungible tokens (NFTs), gaming and the development of Decentralized Autonomous Organizations (DAOs) - sees almost 8X the active address count compared to an ecosystem like Cardano (ADA).
If you want to dive further, also search for data on the number of active developers on a network. High developer activity could indicate that the project will become more useful as developers discover innovative ways to leverage the network for real-world use.
Even for a seasoned trader, it can be difficult to spot and identify historical trends. But some of the original projects (e.g. Bitcoin) have a longer history that can be leveraged in your decision-making. Use these data points when researching assets that have been in the market for a comparatively longer time.
Be aware, however, that past price performance does not indicate future performance
What strategy is best for beginner investors?
While we wouldn’t say there is a one-size-fits-all strategy for every new investor, we do believe that every investment starts with thorough, independent research on a chosen asset. Following this, HODL’ing and DCA strategies could be ideal for a beginner, as they are less dependent on market swings and predictive analysis; both of which may be difficult for a new investor to grasp.
How can I keep my crypto investment safe?
At first, some of these storage methods may seem more complex than the traditional bank account. For investor peace of mind, Caleb & Brown provide end-to-end custody solutions for hassle-free storage. We have a battle-tested security infrastructure, through the leading asset security platform Fireblocks. Additionally, all clients receive a free security consultation to ensure they follow security best practices.
What is the Fear and Greed Index?
The Fear and Greed Index is a quantifiable representation of crypto market sentiment. The most popular version, developed by alternative.me combines several indicators that help measure the levels of psychological stability (or instability) within the market. This index provides a computer-generated score between 0 and 100 to describe the current sentiment of investors.
Some investors may use the index to gauge when they should enter and exit their market positions. It’s worth noting that market sentiment—even when boiled down to a number on a scale—is still inherently subjective and therefore not a completely reliable way to guide your investment decisions.
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Disclaimer: This assessment does not consider your personal circumstances, and should not be construed as financial, legal or investment advice. These thoughts are ours only and should only be taken as educational by the reader. Under no circumstances do we make recommendation or assurance towards the views expressed in the blog-post. The Company disclaims all duties and liabilities, including liability for negligence, for any loss or damage which is suffered or incurred by any person acting on any information provided.