About a year ago three of my cousins contacted me to say that they’d made their first crypto investment and asked if I had any advice.
After my initial back-and-forth with them, I set up a group where we could all communicate to share ideas about things we were learning in the crypto space. I advised that a lot of the advice I would be giving would be based on first-hand experience of what NOT to do, as much as it would be about what to do.
The below list comes from the experience of investing and trading hundreds of thousands of dollars, so I hope you find it useful.
I’ve learned three main strategies that will maximize the chances of you retaining and increasing your capital, as well as reducing your risk of losing significant amounts (if not all) of your funds.
Dollar Cost Averaging.
Dollar cost averaging is investing a fixed amount of money into an investment at regular intervals, i.e weekly or monthly.
Dollar Cost Averaging solves the problem of trying to time the market, which is a common issue that new investors face. Note – you can’t time the market. Thinking that you can always buy low and sell high is a quick way to either lose your money or miss the chance of investing altogether and therefore making profits.
Consider this scenario:
Crypto X is trading at $100 and I buy 1 unit for $100.
A week later it is trading at $50 and I buy 2 units for $100.
A week later it is trading at $200 and I buy 0.5 units for $100.
A week later it is trading at $50 and I buy 2 units for $100.
Total weeks – 4
Total spent – $400
Units accumulated – 5.5
Average cost per unit – $72.72
As you can see from this example, on average I have acquired the coin/token at an average of $72.72, which is closer to the low than the high (which is obviously a good thing). You can also see that based on the price fluctuations, there was no clear entry point, as you wouldn’t have wanted to buy the coin or token when losing up to 75% of its value (weeks 2-3).
During the week when it increased from $50 to $200 it was increasing on average $21.42 per day, meaning if you didn’t buy it at the low of $50 or the next day, you would have ended up paying more than the $72.72 you’d have paid on average by using the DCA strategy.
In short, using the DCA strategy over a lengthier timeframe will give you the best chance of accumulating your assets at the best price.
Hodling.
Like with DCA’ing, hodling is another longer-term strategy that will maximise your opportunities for profits and minimise your chances of loss.
When the market is plummeting, it’s easy to want to get out of a position with the aim of buying it back cheaper. There are several issues with this, the main one again being that you are trying to time the market (you can’t). It is highly likely that if you are selling on the way down:
You will get trigger-happy and lose sight of your profit margins by arbitrarily buying and selling when you “think” the low/high are in.
You will revert to short-term thinking and watching your coinmarketcap.com screen every five minutes trying to time the market and repeat the above step.
You will buy higher than you sold and sell lower than you bought, thereby throwing your money away.
Note – Hodling doesn’t aways work. I am currently hodling 2,000,000 of a token that I am praying will return to $0.01 in value but is currently valued at $0.000024. That being said, all the money I have invested is not lost (because I haven’t sold anything). If the coin ever hits $1 I will be a rich man, however if I sell now I won’t have anything. I just have to play the waiting game!
To mitigate the risk of investing in shitcoins, I recommend
Stick to the big 2.
Bitcoin (BTC) and Ethereum (ETH). Both of these coins are incredibly valuable and incredibly undervalued, presently. Each solves a different world problem – BTC has the security, decentralisation and store of value, and ETH has the use value, adaptability and scalability. Plus Dapps, NFT’s and DeFi.
Bitcoin and Ethereum have intrinsic value, a large amount of adoption as well as just being on the scene for longer. Especially BTC which has first-mover advantage in the space.
In my previous pieces about why I believe Bitcoin is the most superior currency ever, as well as my article about Bitcoin price predictions, I outline my realistic price targets for BTC and my justification for those predictions. To say I’m bullish is an understatement, however the point is that I am convinced of the value of Bitcoin. I believe it is the safest investment available right now.
I also believe the same of Ethereum. They say the markets don’t lie, which I believe is why you will see BTC and ETH at the top of the charts on coinmarketcap.com. I don’t see these two being dethroned any time soon, which is why I believe them to be the soundest investments you can make.
Unfortunately, due to the collapse of Luna, you have to be wary of all altcoins right now. Whilst I’m sure there are many projects that will eventually stand the test of time and that will in hindsight seem like a good investment, right now is a dangerous time to invest. Even some of the greatest investors in the space lost millions on the Luna crash.
About Me
I’m Jamie, 35 years old and living in Australia. I got into cryptocurrency in 2018 shortly before the $20k high and subsequent bear market, and when you could buy 1 ETH for $300 (my first investment). Since then I have dabbled in most things crypto-related: leverage trading, minting and selling NFT’s, ICO’s… I’ve been scammed (several times), attempted various trading strategies (from hodling to 100x’ing a trade) and introduced many people to crypto.