The world has witnessed a dramatic growth of cryptocurrency in the last few years. The surreal growth has made individuals curious about knowing more about the crypto platform and ways to invest in the space. This article highlights the different crypto techniques and their role in a highly volatile crypto market.
An overview of crypto investment approaches
Like any other currency, cryptocurrency is an investment that has the potential for financial returns. However, these currencies don’t rely on a central system but rather follow a decentralized mechanism with the help of blockchain technology.
Things to keep in mind before investing in a crypto platform
- Invest only in reputable exchanges and digital wallet providers.
- Protect digital assets from phishing and other hacks by adopting strong passwords and two-factor authentication.
- Learn the trends in the platform and make informed and wise decisions.
Investing in a crypto platform refers to the allocation of funds to digital currencies to generate financial returns. The volatile nature of cryptocurrency offers the potential for both massive returns and tremendous losses, forcing investors to adopt different investment techniques.
In a crypto market, a rapid fluctuation in price can create a strong impact on investment decisions. Adopting various investment techniques allows an investor to try different approaches and adopt the most appropriate one. Since the risk associated varies depending on individual interest and investing patterns, diverse investment techniques increase the scope of crypto investments thereby increasing the potential profits.
Different crypto investment techniques
Adopting a crypto investment technique not only reduces the possibility of risks but also yields a good financial return.
1. Buy and hold investing
Buy-and-hold investing is a known investment technique in which a crypto participant invests in the cryptocurrency and waits for its worth to increase over time. This strategy is commonly known as HODL (hold on for dear life). The long wait does not always result in ripe fruit, at times a loss also occurs.
2. Arbitrage
Arbitrage is a trading technique in which an investor buys a crypto token for a cheaper price and sells it at a price higher than the bought price. This strategy requires continuous analysis of the price fluctuations and spontaneous actions on the right occasions. A trading bot improves the efficiency of arbitrary investment techniques.
3. Day trading
Day trading is an investment approach in which a trader buys and sells the crypto investment within the same day aiming for short term less fluctuating profits. To make day trading effective, one has to analyze the market trends and familiarise the analytic tools. Analyzing the fundamental and technical aspects of crypto trading also helps to improve the potential gains.
4. Staking
Staking is a method in which an investor holds the assets in a wallet for return rewards. Adopting a staking technique is considered profitable in a long-term crypto investment.
5. Lending
An individual lends their assets to others and earns interest in return, this process is known as lending. Though lending can be a rewarding technique, the risk of scams and security breaches is high.
6. Mining
Mining is an investment approach in which a trader earns new cryptocurrency as a return reward for setting up special hardware that solves complex problems.
Long-Term vs. Short-Term Investment Techniques
Long-term investment technique involves holding the assets for a longer period of time, even years. A long-term investment aims for huge profits and doesn’t get affected by the daily fluctuation of cryptocurrencies. Many investors believe that the crypto stakes grows over time and waiting for a long period can definitely yield financial returns, though this is not true always, chances are high.
Long-term crypto investment strategies include HODling (buy and hold), Dollar Cost Averaging (DCA), staking and earning rewards, research-backed investments, and diversification.
- HODling: Buying a crypto asset and waiting for a long term to sell it aiming for an increased profit.
- Dollar Cost Averaging: DCA is an investment approach in which a trader invests a fixed amount of money at regular intervals. These regular intervals can either be weekly or monthly.
- Stake and earning rewards: (described above as staking).
- Research-backed investments: Evaluating the track records and partnership and understanding the potential benefits of long-term investments and gradually investing in them.
- Diversification: Diversification is the process of spreading the assets across the platform to reduce the potential risks.
Short-term investment involves buying and selling assets over a short period of time to gain profit from fluctuations. Though short-term investment yields profit the risk associated can’t be neglected. To make an effective short-term investment one has to understand the industry dynamics and have to be capable of making quick and wise decisions.
Short-term investment strategies include day trading, swing trading, scalping, arbitrage, and news-based trading.
Since we have briefed day trading and arbitrage above, let us understand the remaining techniques.
- Scalping: Scalping is an investment technique that aims for a profit from small price movements. Scalpers make a large number of small trades throughout the day.
- Swing trading: Swing trade aims to achieve a financial return from small to medium price movements. By adopting this technique one holds their asset from days to weeks and sells them when an effective exchange rate meets.
- News-based trading: It involves trading based on the news and events happening in the crypto market. They analyze the happenings and make predictions for short-term investments.
Bottom line
There are a large number of crypto investing techniques available, a trader can utilize them to avoid the risk and gain potential returns from crypto investments. Crypto investments are broadly classified as long-term and short-term investments allowing a trader to invest accordingly.