Explore the world of crypto investment strategies to find the best fit for you.
Updated Mar 16, 2023
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You don't have to be an expert to know that cryptocurrencies are a volatile asset class. The volatility baked into this market means anyone investing in crypto takes on extensive risks.
But every investor will choose different strategies to manage their risk. If you aren’t sure what strategy is the right move for your financial goals, then fear not. Let's explore the best crypto investment strategies to find one that works for you.
Every investor has unique goals and risk tolerances. If you're choosing to invest in the cryptocurrency market, you probably have a higher risk tolerance than someone who trades traditional assets like stocks.
If you're willing to dive into a volatile market after the major crypto crash, then having a strategy will make all the difference for your returns and the amount of risk you take.
Here’s a closer look at the best crypto investing strategies.
Not all cryptocurrencies are good opportunities for investors to make great returns. As you start researching the crypto market, you might build strong opinions about which coins or tokens are built to last and which ones are better to avoid.
It’s natural to see big price swings for crypto assets, but sustaining prolonged losses usually isn’t a good sign for any investment.
Be wary of new arrivals to the cryptocurrency space. Although many investors are drawn to new projects, do your own research before investing your hard-earned dollars. Unfortunately, scams regularly pop up on the market, so it's important to scrutinize every project and rule out ones that show red flags regarding their credibility or trustworthiness.
When you go all-in on a particular coin, it’s a good idea not to overextend yourself. Even the most reputable cryptocurrencies like Bitcoin and ETH are very volatile against fiat currencies like the dollar. If possible, don’t invest money that you might need in the near future.
Also, setting your investment goals before you enter the market is a good idea. Of course, buying low and selling high is generally a good plan. But if you're jumping into a single crypto asset, map out your long-term strategy.
Are you planning to hold it for the long term? Or just until your portfolio hits a specific number? You can put these goals into practice by using platforms like Kraken to set a stop loss price or how much profit to take once a certain price is reached.
An ICO (Initial Coin Offering) is like an Initial Public Offering (IPO) where investors in a crypto project receive a token instead of stock in a company. Typically, ICOs are used to raise funds for a crypto project by selling their native token to early supporters at a very low price—usually denominated in popular coins like BTC or ETH.
This opportunity to get in early could pay off in the long run. For example, Ethereum’s 2014 ICO raised several million dollars over the launch period. But it’s important to be on the lookout for scams, as some ICOs have gotten away with millions of dollars. For example, Modern Tech’s ICO got away with $660 million in ICO earnings while investors got practically nothing.
Reading the whitepaper is one way to root out potential scams. Dive into the document's details and try spotting anything that doesn’t add up. Doing your research on the founders can go a long way to protect your investments.
Beginner investors tend to get started with well-known tokens, but the hunt for microcap altcoins can be lucrative if you find a winner.
Typically, microcap altcoins have a small market capitalization in the range of $50 million or less. If you're able to invest in a popular microcap coin early, it’s possible to see a major upswing in your investment. A few examples include Modefi and Argello.
However, there are risks tied to investing in smaller coins. Some compare microcap coins to the penny stocks of the crypto world. Though it’s possible to make a profit, it’s not always easy to distinguish winners from losers, which can make it feel like a gamble. If you're planning to buy and hold for the long term, that could backfire if the coin turns out to be a bust.
As you build your portfolio in any asset class, paying attention to popular trading narratives can pay off, and there are plenty of opinions out there. One popular trading narrative is that Ethereum is deflationary after the merge, but this is still debated by the community.
You can choose to base your trades on these narratives. However, it’s important to do your own research before diving headfirst into a popular narrative. Being a skeptical investor is one of the keys to success in crypto.
As you hunt down the facts, reputable sources like the project’s official website are the best sources of information. Although learning from others on social platforms is helpful in building commanderies, you should always double-check the facts for yourself.
Whales are traders with extensive portfolios that control most of the market for a particular crypto. As the saying goes, if you can’t beat them, join them. In the crypto space, you might be able to avoid the pitfalls of learning how the market works by simply copying the trades of successful investors.
Whether or not copy trading is effective depends on who you're copying. In some cases, the crypto whale is making a trade that won’t suit your portfolio well. But in other cases, you might get lucky when the trades of a major player in the crypto space strikes it big.
Not sure how to copy trade? One way is to dive into the blockchain. By looking into the data, you can determine the transaction sizes. If you spot a transaction with a high value, a whale just made a major trade.
The good news is you don’t have to handle this analysis on your own. Whale tracker tools like Whale Alert or ClankApp can be super useful in tracking the biggest crypto investors. If you want to put your copy trading strategy on auto-pilot, check out eToro. Their platform makes copy-trading successful investors easy and convenient.
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A crypto airdrop happens when a project sends out free tokens to its followers. By sending out a wave of free tokens, the project hopes to encourage users to adopt its cryptocurrency.
It’s sort of like a free sample from a beauty shop. The shampoo maker wants you to fall in love with their product and come back to buy more.
Crypto investors can use airdrops to build their portfolios without spending a dime. Typically, you can score free crypto via an airdrop by following a particular social media account, creating an account on a platform, or completing a transaction on a certain blockchain.
It’s possible to score big on a crypto airdrop. So if you're interested in building a crypto portfolio without cash on hand, airdrops are a strategy worth pursuing.
A yield farming strategy involves depositing crypto into DeFi (decentralized finance) protocols to maximize yields.
Typically, this requires a combination of providing liquidity to a decentralized exchange, staking, and depositing your crypto into a lending platform. The goal of this investment strategy is to maximize the earning potential of your assets without giving up custody.
In the best-case scenario, you use this crypto investing strategy to create a passive income stream from your existing crypto assets. However, there are risks that come with being unable to make quick for the exit when shit hits the fan. Plus, there are potential risks of bugs and theft tied to the smart contracts used by yield farming platforms, so be cautious when using DeFi.
If you have a flair for digital assets, you can mint your own NFTs (non-fungible tokens). Some places to trade digital creations on the blockchain are OpenSea and Rarible.
You can use this investment opportunity to collect payment in cryptocurrencies. Instead of forking over fiat in exchange for crypto, you can build up your crypto portfolio by flipping NFTs. This is an especially useful option if you're short on cash to invest but have access with new projects that could potentially explode in popularity.
Of course, selling newly minted NTF is easier said than done. It often takes a suite of incentives to create demand by giving investors a reason to buy and hold the NFT. Plus, you’ll likely need to build good reputation across several NFT communities so people know what you're selling them is legit.
Since it might be hard to beat other investors to a new NFT minting contract, buying and selling NTFs on the secondary market is the best option. But this strategy is also fraught with risks. Ultimately, investing in NFTs requires a lot of time, energy, and luck to be successful since the earliest adopters already scooped up the easy money.
The value investing strategy can be translated to the crypto market. You can scour the market for crypto assets that you feel are undervalued and buy them while they're underpriced.
For example, let’s say you run the numbers behind a particular coin and find that it should be worth more than it’s trading for. As a value investor, that’s an opportunity to purchase an asset for less than it might be worth in the future.
Behind the scenes of a cryptocurrency, a coin's value can be evaluated by several metrics. A value investor can look for opportunities for use in the real world, the credentials of the team behind it, the scalability of the underlying blockchain network, and how many unique users it has.
Value investors don’t mind spending a lot of time and effort putting a value on a token. Although it can be a more involved approach, it can pay off for some investors.
For investors with the time, energy, and interest to follow the crypto market on a regular basis, an investment strategy built on technical analysis is a worthwhile option.
When opting for the technical analysis approach, you’ll need to be comfortable diving into the nitty gritty numbers tied to the digital asset. The goal is to interpret the mathematical indicators connected to a token correctly. You can use this mathematical interpretation of the market to make trades.
Some of the metrics you might look at include price changes and volume data. If you're able to interpret the data correctly and efficiently, a strategy based on technical analysis could work out well. But the reality is that these metrics change and don't necessarily reflect a token's fundamentals. And you’ll need to stay on top of metrics to make this strategy work in the long term.
A few charts that will help you perform a thorough analysis include RSI, MACD, and Bollinger Bands. You can access these tools using Crypto.com and other crypto trading platforms.
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Choosing a crypto investment strategy is only the first step process. You’ll also need a platform that lets you to efficiently execute it. As you start building your crypto portfolio, you might end up trying a few different strategies to get your feet wet. Regardless of whether you're employing a strategy or just DCA'ing into ETH, you’ll need a place to safely build your crypto portfolio.
One choice is eToro, which will allow you to copy trade, analyze cryptos, and socialize with other traders. Another is Kraken, which offers staking, careful analysis, margin trading, and more. Another robust platform is Crypto.com, which lets you can buy, sell, store, send, and track over 100 cryptocurrencies.