The primary ways to invest in crypto
The soaring prices of Bitcoin have brought a lot of hype upon cryptocurrency. Global industry leaders such as Tesla and JP Morgan have already jumped on board, directing mainstream attention into the decentralized space. Many are attracted by the investment possibilities but are not familiar with the crypto environment. If that’s your case, we will cover the basic options offered by cryptocurrencies to those who are interested in this technology as an investment opportunity.
There are many approaches to choose from, depending on your taste. For those who are just testing the crypto waters, there are conservative strategies that rely primarily on price fluctuation. Meanwhile, those interested in a fast-paced and exciting environment can explore the trading options. If you are already confident in your crypto knowledge, you can make your coins work for you through innovative Decentralized Finance platforms.
No matter how conservative or aggressive your approach, it is paramount to keep in mind the high volatility of cryptocurrencies. Prices can vary in large amplitudes in a matter of minutes. This aspect sits at the core of everything related to crypto investments. In the same way that the market may generate high rewards, there are equally high risks. It is crucial to do proper research and understand the crypto space before going all-in on any investment opportunity.
Hold on for dear life!
Even if cryptocurrency is a highly dynamic market, it does not mean that all investment strategies must be aggressive. Among the most popular approaches is the tactic of HODLing, which relies on purchasing crypto assets and waiting for their value to increase.
Crypto enthusiasts use the term “HODL” to refer to the relatively conservative approach. It is believed the name was accidentally coined by one crypto trader that misspelled the word “holding” while posting on a forum. The apparent typo stuck and even became an acronym for “hold on for dear life.”
The idea is that buyers of a specific digital currency stash their coins away and watch the price fluctuations. The primary strategy is to wait for a satisfactory price level to sell those coins. However, if the value starts to drop, how can one anticipate if it is just a temporary fall that will be preceded by a significant climb in the future?
The HODL investment methodology is centered on believing the future will be bright. Since hodling is attached to long-term strategies, it is a common approach between early adopters and supporters of specific cryptocurrency projects. It doesn’t require the investor to actively move the coins around, as they simply sit and wait for them to become more valuable. So, it is commonly preferred by those who are not ready for the adrenaline rush of trading.
Crypto roller-coaster: are you tall enough to ride?
Just like trading in the conventional centralized financial market, buying low and selling high in crypto isn’t for the faint of heart. Driven by high volatility, cryptocurrency trading can be portraited as a stock market on steroids. There can be considerable gains in a matter of minutes, but the risks are just as great.
Investors who dedicate themselves to this approach have a typical profile: they have a good understanding of the crypto market and are accustomed to the nature of trading. Crypto exchanges offer various options, from day trading, swing trading, to trend trading and others. It is imperative to dominate the basic investinment strategies to be successful in this area.
As opposed to hodling, trading requires a hands-on approach with active participation. The strategies are usually based on short-term investments, betting on which coins will be the next ones to shoot to the moon. Successful investors are generally immersed in crypto culture, tracking all the news and trends to anticipate the next great opportunity and manage to make decisions without being overwhelmed by emotions.
Catching the DeFi wave
esides the conservative hodling and aggressive trading approaches, investors have been jumping into the various opportunities introduced by the hot trend of Decentralized Finance. Also known as DeFi, the Decentralized Finance sector consists of blockchain-based applications that provide financial instruments similar to those traditionally offered by banks. Decentralized lending, borrowing, trading, and more is all possible through DeFi. The point of difference for these platforms when compared to traditional finances is that, in crypto, they are not managed by a central authority, rather by smart contracts established between users in a peer-to-peer network.
For investors, DeFi represents a whole new world of opportunities. They allow enthusiasts to apply their crypto assets to financial instruments that can, among other things, generate interest. In other words, instead of leaving their crypto gathering dust somewhere, investors can put their digital currencies to work for them.
DeFi as an investment category is still evolving. It can be a compromise between the long-term approach of hodling and the risky returns of trading. However, DeFi investors usually have a broader technical knowledge of the cryptocurrency world. It is not that simple to identify the best investment opportunities, so generally, it is not an environment for absolute beginners.
The new big deal
Many traditional investors that were skeptical about the potential of cryptocurrencies a few years ago have now fully bought into the idea. According to a recent study, most surveyed institutional investors believe that the crypto market is here to stay. The perception that cryptocurrencies were only a speculative fad for insiders has given way to new mainstream adoption prospects.
Still a novelty, crypto investments can be seen as an attractive playing field for newcomers. As in traditional finances, knowledge is vital when designing strategies. So, if you are considering joining the movement, whether through hodling, trading, or DeFi, keep in mind that you can never know enough.
Any information provided in this article does not constitute investment advice or investment recommendation nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or units in any of the investment funds, or any cryptocurrencies or any other financial instruments (or similar) described herein. In addition, the information provided in this article does not contain any offer, recommendation or incitement to conclude any contracts for financial services or to conclude any other kind of contract. In particular, this information should not be used as a substitute for suitable investment and product-related advice. Unless expressly stated otherwise, all given information is non-binding.
Should you have any doubts about the meaning of the information provided herein, please contact your financial advisor or any other independent professional advisor.
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