5 Best Investment Strategies for Crypto for a Volatile Market
All of us have heard crypto investors complaining about the instantaneous fluctuations in the value of their crypto assets. What does this imply? It clearly indicates that the crypto market is very volatile. Then how do some investors earn large amounts of money by investing in crypto even in volatile markets? In this article, let’s discuss the 5 best investment strategies for crypto for a volatile market.
What is Volatility?
Volatility is the measure of the deviation of the prices of any asset from its mean price. It is also linked to the security of the assets. This means that if an asset is highly volatile, the prices of that asset will fluctuate largely, and hence, they are risky in terms of security. When the prices in the financial markets deviate from the existing values by more than 1% in either direction, the market is said to be volatile. This indicates that the security of an asset will experience large deviations in a short interval of time.
What Causes Volatility in the Crypto Market?
There are many reasons why cryptocurrencies are so volatile and so need investors to keep a close watch on the fluctuations in the prices to gain profits. But why is the crypto market so volatile in the first place? Here are some reasons.
- As cryptocurrencies are still new and people are not putting all of their faith in them, the crypto markets are volatile. It is because the stability of a market and public acceptance are interrelated.
- The crypto market has no organization controlling its framework. The fact that the market is controlled by itself, is what attracts people.
- There is a limited supply of some specific cryptocurrencies against which there is a larger audience holding them. This creates overall volatility in the market because of the increased buying and selling of these digital assets.
5 Best Investment Strategies for Crypto for Volatile Market
In volatile markets, it is very difficult for investors to hold themselves tight to their high-valued assets as the profits can turn into losses within a matter of a few minutes in the crypto market. So, how can an investor ensure that they yield only profits from investing in cryptocurrency? Here are 5 investment strategies for crypto in volatile markets.
Diversification of Portfolio
Diversifying your investment portfolio among several digital assets is one of the best investment strategies for crypto investors in the volatile market. This helps in balancing the portfolio when the markets are down. Since traditional investment markets are much less volatile when compared to crypto markets, investors are advised to distribute their investments among various assets.
Another way of escaping the impacts of volatile crypto markets is to hedge your investment portfolio using derivative instruments. The derivative instruments are basically financial instruments whose value depends on the assets (stocks, commodities, bonds, etc.) backing them.
Analyzing the Crypto Market in Depth
In the market of cryptocurrencies, there are numerous projects listed. But how do you choose the best project that you should invest in the crypto market, especially when the markets are volatile? It is very necessary to do in-depth market research related to the historic pricing of the tokens, the utility of their project, and the things they are trying to address. So, the investors should pick the projects that have been doing well in the past and put their money in them. Such projects are least likely to suffer in volatile markets.
Trading Crypto on Social Platforms
Social media platforms are the best way of creating a buzz about new things and therefore, many financial markets are experiencing a change in the way traders interact with one another. It is the easiest way of sharing ideas and gathering useful information that helps bridge the knowledge gap between investors and investments.
In the crypto world as well, there are various social trading platforms where pro crypto traders can share their investment strategies with traders looking to learn tried and tested ways of being successful in crypto trading. In return, they get some percentage, usually 8% of the profits earned by the newbie traders by implementing their investment strategies in trading crypto. This is a great crypto investment strategy for beginners as it helps them in preventing the effects of volatile markets from getting on their portfolios.
Performing Due Research on Projects
When the markets are volatile, there is a good likelihood of new projects being introduced on the crypto market. In such a case, it is very important for investors to do proper research on the new projects. To do this, the investors can look up the project’s website to know about their vision, the team members, the contact details, and so on.
The investors can be more assured of the authenticity of the project by checking the social media pages of the project and the LinkedIn profiles of the founders and team members. Check the followers of the projects and see if they are genuine and engaging on the announcements related to the projects.
Taking the Shorter Route
Short-term trading is another one of the best investment strategies for crypto in volatile markets because it helps you to lock in profits whenever and wherever possible. However, in the case of volatile markets, the profits are likely to go out of hand and turn into losses before the investors think about exiting the trade.
So how do you ensure that you are making profits and exiting the trading at the right time? You can do it by setting a percentage profit that you would like to make from the crypto trading. Another way to ensure that you are always on the positive side of trading is to sell your assets in portions. If the value of your asset is rising quickly, you can sell some portion of it and pocket the profits while letting the remaining portion of your assets grow further in value.
While these investment strategies for crypto are proven ways of gaining profits in volatile markets. However, we always advise investors to do their own research on what works best for them. It is because it is not necessary for one strategy to work out in a similar way as it did for the investor who coined the strategy in the first place. Also, if you are a newbie, the best crypto investment strategy for beginners is to invest only 5-10% of their investments in crypto which they are not scared to lose.