Have you ever had difficulties in choosing an investment strategy for trading cryptocurrencies? Would you like to learn about the excellent strategies used by experts for investing in cryptocurrency? Then you need to read this work carefully to find out how to do so. You will also learn from this work the various types of cryptocurrency available in the market today to assist you in making decisions.
What is Cryptocurrency?
Cryptocurrencies are digital technologies created on a blockchain that offers users a decentralized means for storing their wealth.
Types of cryptocurrency
Cryptocurrency is broadly classified into two. Hence they include: Bitcoin and altcoins.
Bitcoin: This refers solely to the first invented cryptocurrency and most valuable amongst every other cryptocurrency. It has the largest market capitalization and the largest number of investors attracted to it. Often Bitcoin is known to dictate the direction of every other cryptocurrency in the market through a practice known as Bitcoin market dominance.
Altcoins: This refers to every other cryptocurrency outside Bitcoin. The altcoins cover a wide range of digital assets traded on the market today which could be in the form of a coin or token. Hence we have the following:
- Gaming tokens
- Metaverse tokens
- Governance Tokens
- Non-fungible tokens (NFT)
- Native Tokens
- Utility tokens
What are the various cryptocurrency investment strategies?
There are three basic cryptocurrency investment strategies employed by investors today. These includes:
- Spot trading
- Buy and HODL
- Futures and
- Margin trading
A. Spot trading: This involves purchasing a certain amount of a particular cryptocurrency from a crypto exchange and waiting to selloff once the price appreciates. Often spot traders indulge in scalping and day trading. Spot trading offers investors legal ownership of the assets purchased. This means they can transfer digital assets from one exchange to another.
Buy and HODL: This is an investment strategy that suits long-term investors. This strategy involves buying Cryptocurrencies when their prices are low and holding them over a long time till their prices appreciate so much. Here investors take out time to search out those Cryptocurrencies with promising futures and make long-term projects for their prices over a long period. This method is widely used by institutional traders today.
Futures: Futures is a leveraged form of trading that allows investors to take larger positions in the market above their capitals. Here investors predict their target for a given cryptocurrency over a given period and proceed to take positions in the market based on these predictions.
A major disadvantage associated with futures trading is that there is no legal ownership of the assets purchased. It comes in the form of a contract with the broker or crypto exchange. This increases the risk associated with this form of cryptocurrency investment.
Margin trading: Margin trading is very similar to future trading and offers investors the opportunity to either long or short the market using the leverage provided by the broker. The major difference between them is that margin trading requires traders to set out some margin of their capitals to withstand their positions in the market. Here, the trader gets liquidated once he hits the margin call.
Above all, there is no legal ownership of assets purchased through margin trading. This is because margin trading is a form of cryptocurrency CFD trading.
Which is the best cryptocurrency investment strategy?
Given the fact that there is no legal ownership of assets in futures and margin trading, investors have often preferred spot trading over other forms of cryptocurrency investment. However, margin and future trading could be more profitable only if the trader makes the correct predictions.