Slowly but surely the hot topic of cryptocurrencies is getting discussed on several fronts. We can hear Bitcoin and cryptocurrencies being discussed during Senate hearings in the U.S Government. Facebook, JP Morgan and China are all planning to release their own cryptocurrencies. And investing in cryptocurrencies and Bitcoin is becoming easier for both non-techy retail buyers, to institutional investors via Bakkt and Fidelity.
So it’s only natural that you as a beginner to the crypto and Bitcoin space is wondering, should I invest in crypto and Bitcoin and how do I if so best invest in crypto and Bitcoin?
Therefore we have decided to put together the perfect guide for how you can invest smartly in this space. We have created this investment strategy plan that you can use for investing in crypto.
Invest in crypto with a clear plan – ‘Why’ & ‘How’
Like with any investment it is vital to have a clear plan of why you are investing and then you can begin to plan out how you are investing.
I myself am investing in cryptocurrencies because of two main reasons.
- I want to invest in cryptocurrencies to help fund a long-term financial plan. Like help to finance my retirement, generate extra income to buy bonus items (car, etc).
- I am also extremely interested in new technologies, market changing trends and the decentralised nature of the blockchain. So I just want to be around this space, learn and see where it is heading in the coming years.
Therefore based on these two key reasons for investing in cryptocurrencies I can much easier decide my own investment plan. And so can you.
Questions to help you answer the questions for both why you are investing in crypto and then how you should invest in crypto
Why do you want to invest in crypto? I.e. investment purpose
Why are you investing in crypto? Is it for fun? Is it part of your overall investment plan?
You need to decide why you are investing in crypto to better understand how you should invest in crypto.
- Are you investing in cryptocurrencies to pay off your mortgage?
- Your student loans?
- To have an offshoot chance to buy a Lambo or Tesla one day?
- To diversify your investment portfolio?
- To learn about a new emerging market and investment opportunity?
- What is your investment horizon? Short-term – medium-term – long-term?
Are you investing in crypto for short term financial goals (e.g. in the next 2-3 years?) or more medium-term financial goals (5-10 years), or is it long-term financial goals (10 years+)
You need to have a good answer to question number #1 before you can answer the next question.
- Which is what risks are you willing to take when investing?
Because if you are investing in crypto to cash out within the next two years because then you need money to buy a house. Then the risks you should be taking needs to be very low. But if you are investing for long-term goals, then there is room for taking greater risks.
But to answer this question well you also as an investor needs to understand how do you personally feel towards taking greater risks? Are you more risk taking in your nature? Or are you someone who wants to feel very safe with all your investments? And that includes cryptocurrency investments?
Because cryptocurrencies is a high risk investment compared to other forms of investment opportunities. Like bonds and some commodities.
But you can also invest in cryptos with lower or higher risks taken. For example:
- Lower risk investment in crypto would be; investing in the more well-known cryptos like Bitcoin, Ethereum, Litecoin and Ripple perhaps.
- Higher risk investment in crypto would be; investing in altcoins and ICOs, IEOs and STOs.
- How much time can and do you want to spend for this crypto investment?
If you are working full-time on something else and you have a family to look after as well then maybe your time will be more limited. Therefore you will have less time to spend researching new coins and finding out about different projects, or reading trading charts.
But if you have more spare time and you don’t have kids and a partner, then maybe you have more time for the things we mentioned above. Therefore you will have more opportunities to interact with your crypto investment every day.
With a clear idea of your investment purpose, time horizon, willingness to take risks and time to spend on your crypto investment the easier it will be for you to decide what your investment plan for crypto should be.
Next steps for starting to invest in cryptocurrencies.
Basically there are two main crypto investment strategies that you can take when investing in cryptos. And they are similar to investing in stocks.
- Holding (or hodling – learn more about what ‘hodling’ means here). This is where you buy a cryptocurrency like Bitcoin and you simply hold it until it increases in value. And then you might sell it off for fiat currencies or trade it for another cryptocurrency.
- The other strategy is trading cryptocurrencies more frequently. Also known as ‘day trading’. With day trading you trade perhaps daily or every other day to make some profit from every trade. Here your goals will always be to make some profit from every trade. A lot of trades with a small bit of profit will over time amount to a good chunk of profit.
So depending on which investment strategy you want to pursue your investment plan should reflect it.
For crypto holding
When you are simply holding crypto then you will not trade your cryptos that often. You buy a cryptocurrency like Bitcoin, Ethereum, Neo, Icon, etc and you hope it will increase in value over time. Depending on what you overall investment plan is. Are you investing to ‘cash out’ from crypto within two years time then your time horizon will also be reflected.
Also other important factors are how many coins do you want to hold? Just one? Or several?
There are good reasons for diversifying into several coins, and therefore spreading out the risk. So if one cryptocurrency fails, then at least you have others to protect your total portfolio from completely crashing.
But the same goes for the other way around. If one of your cryptos shoot up in price, but the rest don’t. Then your overall portfolio will not increase as much in value as it could have if you had invested all your money into that crypto. So it has benefits and drawbacks of investing into several coins. It depends on how ‘sure’ you are of your coins that you want to invest in.
For day trading crypto
It is very important when you want to day trade crypto that you consider a few important things that every successful day trader has. Which are these three areas:
- Day trade crypto with a clear plan.
Every trade that you make needs to be for a reason. You can’t just buy 1 Bitcoin at market price and hope it will increase in value. Or you can’t ‘short’ Bitcoin via margin trading because you have a ‘feeling’ the price will drop. There must be a reason for believing Bitcoin will either increase in value, or drop in value. And when you have your reasons for that, then you can act on it.
(Learn more about shorting Bitcoin here, and learn more about what margin trading is here).
- You need to set an enter price and exit price for every trade you make.
When you day trade crypto make sure you know when to enter the trade, and when you sell and exit the trade. The exit plan can be within the next five minutes, or it can be the next hour or even in a few days.
Depending on when you see a crypto make its moves. If you use Technical Analysis (TA – learn more about it here), like reading charts, or market analysis such as evaluating market sentiment and related news and events. It doesn’t matter how you make your decisions but you should always have a set plan for when you enter and exit a trade.
So set your profit targets and stop losses for every trade.
(You can learn more about profit target and stop losses here).
- Risk management
Never loss control and always stick to your investment strategy when day trading. Don’t jump into a trade or FOMO just because others are calling this crypto the next Bitcoin.
Make sure you always act with a plan and you enter a trade because it makes sense to you, and not to others.
Another thing is that every trade is piece of a bigger trading puzzle. You shouldn’t consider that you will make enough money to retire, buy a car, pay off your mortgage from one trade. If you think like that then you will take too much risks. Instead consider every trade being part of a greater plan. And you make profit from 8/10 trades then that’s good. Even if you lost money from 2/10 trades. With this type of plan you can take fewer risks and act more confidently. And you won’t lose your overall trading plan just because one or two of those trades were unsuccessful.
Helpful tools and resources to invest smarter in crypto
No matter if you are planning to hold, or day trade these tools and resources below will help you invest smarter and better in crypto.
- Use social media sites to find relevant information.
Find out about what others are investing in and what’s happening in the crypto scene by hanging out at Reddit. Telegram groups, Twitter, etc. Take note of what others are investing in and see if there are any good investment opportunities.
- Download a good portfolio app.
A crypto portfolio app like Blockfolio or Delta will help you keep track of your holdings and when they increase or decrease in value.
We hope by now that you are confident enough knowing yourself, and why you want to invest in crypto. But also how you can invest in crypto. No matter if you want to buy and hold crypto. Or if you want to day trade crypto.
Remember doing research and learning about what is happening in the industry is super important for you to become successful as a crypto investor.
Per Englund, founder of crypto site Go CryptoWise
He is a CX and business developer with a clear aim of briginging user-centricity to the blockchain and cryptocurrency space.