If you want to invest in cryptocurrency like a pro, you should analyze your risk profile first. As the cryptocurrency market is a volatile market and your investment will be speculative, understanding your risk profile is very important before investing.
Willingness to take risks refers to the extent of your risk aversion. Are you a risk-taker, a risk-neutral person, or a risk-averse person? Your crypto investment strategy will depend upon your risk profile.
A proper understanding of your risk profile will help you understand what is your ability/willingness to take on risk while you invest in cryptocurrency. Your risk-taking ability depends on multiple factors. It depends upon your personal profile, professional profile, family wealth, current investment portfolio, and understanding of the crypto market.
The thumb rule of investment is higher the risk, the higher will be the return. If you want maximization of capital growth, you should expose your portfolio to greater risk and higher volatility. Investments in Bitcoin, cryptocurrencies, equities, and other speculative investment instruments are best for you.
If you prefer stable investment and focus less on capital growth, you belong to the risk-averse category. In such a case, your preference will be investment stability, gradual growth in value, and less volatility. Therefore, debt-oriented financial investments should be the preferred choice as they focus on providing you with steady income backed by moderate capital growth.
If you like some extent of the volatility of the market but don’t like too many twists and turns then you belong to this group of investors. The best thing in this investment profile is a perfect balance between crypto, equity, and debt instruments. This will provide you steady growth of capital over a long period of time.
Now, ascertain your risk profile so that you can invest in the right instrument and with the right strategy. You should invest in cryptocurrency only if you belong to the high risk and medium risk profiles. This is mainly because the Bitcoin and crypto market is highly volatile.
Now, let’s have a look at the different investment opportunities and strategies that are appropriate for different risk profiles:
If you are a dynamic investor, you should want your capital to grow. This can be achieved by investing in a wide range of financial assets/instruments including:
Example of High Risk, High Return in Crypto Market
Let’s take the example of a risk taker investing in Bitcoin. Suppose, you are a risk-taker. You invested US10,000 in January 2017 in Bitcoin. At that time each Bitcoin was worth US$1,000 of value. This means you had earned 10 Bitcoins with your US$10,000 investment.
If you had held these Bitcoins when their value increased to it’s all-time high at US$41,962.36 (in early January 2021), the value of your initial investment could have increased by more than 4,100%. Therefore, your initial investment of US$10,000 would have increased to US$419,623.60 in just 4-years. This is the upside of your high-risk, high-return profile.
Example of High Risk, Moderate Return in Crypto Market
However, Bitcoin is a volatile market. It reached a near-US$20,000 level in late 2017. As the 2017-rally was led by the retail investors (who tend to invest for a shorter period of time), the market couldn’t sustain the momentum and came tumbling down to below the US$3,400 level within a year. If you panicked and sold your 10 Bitcoins when it was hovering around US$3,500, you could have received just 250% return instead of 4,100% ROI (return on investment).
Example of High Risk, Massive Loss in Crypto Market & Turnaround Strategy
In case you invested your US$10,000 at the end of 2017 when the Bitcoin price was around the US$19,500 level, you could have made a massive loss if you sold at around the US$3,500 level. Your initial investment of US$10,000 would have become US$1,795, a loss of US$8,205.
However, your investment of US$10,000 at the end of 2017 could still have earned you a significant return if you held it till now (when the investment reached an all-time high of US$41,962.36). Your US$10,000 investment could have become US$21,519, more than doubled in just 4-years.
So, when you invest in Bitcoin or other cryptocurrencies, always invest for a longer period of time. The above example justifies this ‘hodling’ strategy. If you are making a loss in the short run, hold it for a longer period of time to provide you higher returns instead of a loss.
If you are a risk-averse investor, you should adopt low-risk investment strategies including:
If you belong to a low-risk profile, 80% of your investment should be in fixed income or debt instruments. You can also invest in cryptocurrencies or stocks. However, the investment should be a very small percentage (say, within 20%) of your total investible funds.
In fact, it is best for you to go for a systematic investment plan (SIP), when you are investing in cryptos or stocks. As per SIPs, you have to make regular and equal payments in Bitcoin, Ethereum, any altcoin of your choice (such as Chainlink, Cardano, or others), preferred stocks, or higher risk financial assets. This will average out your risk as well as return.
SIPs enable investors to save a smaller amount of money on a regular manner, providing the long-term advantages of dollar-cost averaging (DCA).
If you belong to the balanced risk profile, you should invest 50% of your investible funds in growth assets (such as Bitcoin, cryptos, equities, property, and other high-risk financial assets/instruments). The other 50% should be invested in defensive assets including fixed-income financial assets, bank savings, and cash.
When you make an investment, always make it for at least a 3-year investment lock-in or horizon.
Even when you make an investment in Bitcoin, altcoins, or equities, try to average out your risk by adopting SIPs. It provides you the advantages of dollar-cost averaging (DCA).
The days of investing only in Bitcoin are slowly but surely fading. In terms of market capitalization, Bitcoin holds 45% dominance and the altcoins including Ethereum hold 55% dominance in the cryptocurrency market. If you buy bitcoins, you should also buy other prospective altcoins such as Chainlink LINK, Ethereum ETH, Cardano ADA, Bitcoin Cash BCH, and other types of cryptocurrencies.
The top cryptocurrency to invest in is Bitcoin (BTC). The other popular cryptocurrency that is expected to flip Bitcoin in the near future is Ethereum (ETH)you can invest in are:
Bitcoin brings a revolutionizing concept of transaction that bypasses the centralized banking system and thereby decreases the cost and time of transaction. In fact, other cryptocurrencies are also improving blockchain technology by including smart contracts and other revolutionary technologies.
If you are comfortable investing in risky assets, you can also buy stocks from Dow Jones or similar other leading indices. You can now decrease your bitcoin exposure and instead start investing in other altcoins and stocks for a diversified portfolio. Consult financial advisors and wealth managers to know which are the cryptocurrencies such as Bitcoin and stocks to buy for both short-term and long-term growth prospects.
Let me explain the SIP Investment Strategy with an example.
Suppose, you invested US$100 every week since early 2017 when the per Bitcoin price was just US$1,000. By investing every week in the last four years, you could have invested US$20,900 till now. At the time, the Bitcoin price reached an all-time high at US$41,962.36.
By investing small amounts weekly on a regular basis, you could earn a cumulative ROI of around 300%. After 4-years of regular weekly investment, you could have earned more than US$1,20,000 from your US$20,900 investment over these years. This is the power of dollar-cost averaging, thereby giving you a decent return even in this volatile market.
Now, you know how to invest in Bitcoin and other cryptocurrencies like a pro or expert even in high volatility. There is another strategy that you can adopt if you are a newbie in the crypto market.
Get better guidance on improving your personal finance, retirement planning, management of cash flows or capital gains, and investment ideas from financial advisors and wealth managers, especially the ones who are not averse to Bitcoin and other cryptocurrencies. While day trading, you should always try to invest only that much which you can afford to lose. Financial protection must be there in your mind always while you make cryptocurrency trades. While investing in cryptos, try to invest through Bitcoin exchanges and reliable online brokers.
Once you are ready to invest in Bitcoin or buy cryptocurrencies, you can do so in a legit way by investing through a cryptocurrency exchange. You have to open an account with such an exchange, verify details (including basic personal information), and then fund your crypto trading account. You can fund your crypto exchange account by connecting your bank account (savings accounts or checking accounts), transferring money online through bank transfer, credit cards, debit cards, and other payment options.
In case you are bullish on the future prospects of Bitcoins and other digital currency, you can transfer them to hot wallets or cold wallets (including most secure hardware wallets) and hold them for a longer time period for significant price appreciation.
This will help you get a higher return in the long run, much more than investing in stocks, mutual funds, index funds, real estates, yield savings accounts, real estate investment trusts, and others. In fact, many retirement funds or IRA accounts such as Roth IRA are allowing investors to incorporate Bitcoin and other digital assets of investment in the portfolio so that the prospects of these funds increase due to the higher returns of BTC and other cryptos. Therefore, it can be concluded that holding Bitcoin and other cryptos can help you to build real wealth and multiply your net worth.
You can learn investing basics of cryptocurrencies to make more gains. You can start going through Wall Street Journal and other investing magazines on cryptos to learn more about investing in cryptocurrencies and make better financial decisions. You can learn about valuation calculation to true bitcoin value and assess the overpriced or underpriced situations instantly. As a beginners guide, you may also check out the trading basics provided by various cryptocurrency exchanges such as Coinbase, Binance, Kraken, and others.
You can also consider the Cryptocurrency Trading Robots that scans the market automatically in real-time and trades for you. They run 24/7, which means that you can keep earning your passive income even when you are sleeping. This gives you an edge over other investors as it enables the bot to book profits on your behalf when other investors are sleeping.
Smart crypto investors always remain prepared to get the best of a big market move. They don’t wake up suddenly. To remain alert round the clock, they use cryptocurrency trading bots such as NapBots.com so that they don’t miss any big market movement.
NapBots.com is a Trading Bot, cloud-based platform, on which you can connect to major exchanges such as Binance, Bitmex, Bitfinex, OKEX, Kraken, Bitstamp, and Bitpanda.
The best thing about the Napbots trading software is that you don’t have to monitor charts and candles to predict your next move. Any novice trader with zero skills can also start trading like a pro and earn money with this unique trading tool. Let Napbots take full control over your trades in just a few clicks. Now, sit back and enjoy earning money.
NapBots crypto trading software is special because it comes with:
NapBots offers complete trading automation solutions through the use of its own tested trading strategies; offering quantitative trading strategies previously reserved for hedge funds to the public.
The setup and installation process are easy. So, the non-experts can also use it. The simple and special approach of NapBots helps it provide you with excellent ROI.
The team of professionals behind NapBots has extensive experience in the financial market. They have put their years of experience in place so that you can easily automate the management of your funds with no technical skills. This service can run 24/7 and work as your passive source of revenue even when you sleep.
If you still need assistance, you can refer to the following guides: