You hear about bitcoin and cryptocurrencies a lot now. People buying bitcoin, selling bitcoin, trading bitcoin and other altcoins, you name it! So how are people making money from buying, selling and trading? What types of strategies have led to these successful stories about people making thousands and sometimes millions from cryptocurrencies?
Here we have gathered some information about general investment techniques for those looking to start investing in bitcoin (and other cryptocurrencies, of course).
However, before deciding on any sort of investment scheme, it is best practice to start by having a plan. Now of course, plans are always subject to change, but it is always better to have an idea about where you want to go with your investment — some sort of “end goal”.
Whether it be wanting to pay off a loan or something like saving for retirement, knowing what you need from your crypto investment is important. Paying off a loan is more short-term, in this case, when compared to saving for retirement, so timing should be a major consideration.
Say your decide to purchase some bitcoin, and then your investment increases to $100,000 after five years. Depending on the size of the loan you are looking to pay back, that amount could potentially be enough to pay it off in full. However, $100,000 is an incredibly small amount to retire on. Therefore, the retirement scenario would require more time for the investment to grow.
Both of these scenarios are fairly simple examples that assume that the investment will appreciate in value over time. With bitcoin in particular, there has definitely been an exponential increase since the start of this year. But with the huge spikes in the price of bitcoin, there have also been significant drops as well. When thinking about your investment, you should also expect the dips in the price, especially larger ones as bitcoin is very volatile.
A good, general rule-of-thumb is to never invest more than you are willing or able to lose. Additionally, when you do purchase (most often from an exchange), do not leave your bitcoins on the exchange — always transfer your order to your personal wallet that only you have full access to.
In terms of strategies, dollar-cost averaging (DCA) seems to have the most success due to the fact that bitcoin price is so volatile. DCA is when you do not purchase all at once and just hold your investment; with DCA, you buy a fixed amount every day, week, month or so throughout a given time frame. With this strategy, you are more focused on the investment schedule as opposed to the swing in price.
DCA is a less risky (but still not full-proof) strategy to actual earn on your investment. What a lot of individuals are doing is trying to guess when the price swings will be, then buying and selling accordingly — the typical “buy and hold” strategy. This is also effective, but normally only when you are right on the ball and get lucky predicting the swing in the price of bitcoin and other altcoins.
If you do choose to invest, it is important to do your research and consider all factors. Your investment can go both ways, there is always potential to gain and/or lose money depending on the state of the market. But the choice really comes down to you and if you feel comfortable investing in the end.