How To Survive In The Crypto Market Long Term
Especially for small investors
Currently, many retail investors are entering the crypto market because of FOMO. And many of them lose money because they can’t handle the price fluctuations and/or don’t understand blockchain.
For this reason, I’ll show you my personal investment strategy which will give you the knowledge and calm required to survive in the crypto market long term.
That being said, this strategy is not for everyone because it requires work. So if you just want to 100x your money in one month as easily as possible, you can stop reading here.
Choose your coins
The first thing to do is choosing the coins you want to invest in. Now, that’s easier said than done because there are thousands of coins to choose from. So how do you do that and what should you be looking for?
Before we do that, you should decide how many coins you want to invest in. While diversification is important, it’s also not recommended to over-diversify yourself, especially if you can only invest small amounts. There are also some other things small investors have to keep in mind which are often overlooked. We’ll discuss those later. For now, I recommend choosing 2–5 coins.
Now that you know how many different coins you want to buy, let’s figure out how to find them. I suggest you start looking at the top 20 cryptocurrencies by market cap. You can find those at CoinMarketCap or Coingecko. By limiting your choices to the top 20, you reduce your risk greatly while still being exposed to much higher gains than you can expect in the stock market. That’s because the top 20 currencies already have a relatively large market cap in the billions of dollars which reduces price volatility. Just keep in mind that they are still pretty volatile compared to the stock market.
For the next step, you pick some of those coins that catch your eye and check out their fundamentals. Fundamental analysis is a common method in the stock market to evaluate a business’s worth by looking at its financial statements, track record, board of directors, and competitors. This process looks a bit different when evaluating a cryptocurrency since they don’t have any balance sheets and hardly any track record to speak of.
Unfortunately, explaining how to do fundamental analysis on cryptocurrencies is beyond the scope of this post. I may write a guide on how to this in the future but in the meantime, I recommend this video from Coin Bureau (No, I’m not affiliated with him in any way).
You might be thinking now, “But that’s so much work!” Yes, you’re right. But let me tell you this: This is a crucial step to build confidence in the coin you invest in. If you skip this step, you’ll most definitely lose confidence and sell your coins when a major price correction hits.
So it’s on you to decide which one you prefer — spending a few hours on research or losing your money.
Of course, this is by no means a guarantee that you’ll make money, but it reduces the risk further. The goal here is simply to find coins that you believe in and are willing to hold long-term.
Find the right entry point
After you have chosen your favorite coins, you need to find an appropriate entry point. After all, we don’t want to buy them when they just hit a new all-time high. For this purpose, you can use technical analysis. With technical analysis, you look for price patterns and use technical indicators to determine good entry and exit points.
Technical analysis is a vast topic in itself which is why I’ll refer you to other guides at the end of this chapter which you can check out. The amount of information might feel overwhelming at first, but it’ll pay off in the long term, believe me. For simplicity, I mainly use three technical indicators: Exponential Moving Average, Relative Strength Index, and Bollinger Bands on the daily and weekly timeframe, but your setup may look completely different.
In this step, patience is of utmost importance. It’s very easy to get caught up in FOMO and FUD, so beware of that. I got caught up in it more often than I’d like to admit, too.
Anyways, just be patient and buy your chosen coins when the time is right. You’ll thank yourself for it later. However, don’t try to time the market perfectly, because that’s practically impossible.
Alternatively, you can skip this step entirely and follow a DCA strategy. That’s certainly a viable option as well if you don’t have the time to watch market movements regularly. That being said, I think that technical analysis is a valuable skill to learn in the long term.
Earn interest on your crypto
You’ve waited for the right time and bought some coins, so what now? Well, depending on what coins you bought, you have several options.
First, you could just keep them on the exchange and let them appreciate. But that wouldn’t be very efficient. Why should you let money just sit still if you can just as well put it to work so it earns even more?
If you bought a coin whose blockchain uses a Proof of Stake consensus — you should’ve found that out during your fundamental analysis — it’s usually best to store them in a cold wallet and stake them there. Ledger and Trezor are the most popular choices.
The staking process looks different for every currency, so you’ll have to do your own research on how to do it. Staking is also a good exercise to get more familiar with blockchain technology in general while contributing to its ecosystem, making it more secure.
However, what about coins you can’t stake, like Bitcoin? For those coins, you can make use of crypto lending platforms. They work in the same way as a savings account. You store your assets there and earn interest on them. Because they usually pay the accrued interest much more frequently than banks, you can even take advantage of pretty strong compound interest.
Popular choices are Nexo, BlockFi, and Celsius. Each one of them has different interest rates, supported coins, accepted countries, payout intervals, and withdrawal conditions, so pick the one that suits you best.
Nevertheless, they are usually not as secure as a hardware wallet and they can be hacked. That’s why I’d recommend only putting a certain percentage of your portfolio on such centralized platforms. Of course, it would be even better if you can use more than one platform to diversify your risk.
While earning interest on your crypto and taking advantage of compound interest is very nice, the main advantage this gives you is calmness. Since you have completed the fundamental analysis and know that your money still earns more money, you probably won’t panic and sell all your coins when the next bear market comes — which is going to come eventually.
Note: Remember when I said there are some things small investors have to keep in mind that are often overlooked? Those things are withdrawal fees from exchanges. For small investors, those fees can be devastating. So before you withdraw your funds from the exchange to a hardware wallet or a lending platform, make sure they are not too huge in relation to the amount you want to withdraw. This is another reason why you should not choose too many coins in the beginning.
Sell your coins
Diehard hodlers will probably disagree with me on this point, but there’ll come a time when you want to sell your coins. Taking profits is an important step in risk management so that a coin that does particularly well doesn’t make up more of your portfolio than you want it to. It also ensures that you have enough cash on hand to take advantage of a major price correction.
As for the question of when and how much you should sell, it depends on your financial goals. I usually sell part of my holdings when I think that the current growth is unsustainable. However, if that’s too vague for you, you could set up a rule like “When coin XY 3x, I sell 20%.” Of course, that’s just an example. You can adjust it to your own needs.
Another thing you have to keep in mind when selling your Proof of Stake coins is that some coins have an unstaking period of up to 28 days. So you’ll have to plan your exit in advance.
Yet another thing to consider is taxes. If you plan your exit smart, you can even save a ton of money on taxes. For example, in some countries, you get tax benefits when you hold a cryptocurrency for a certain period, often one year. You’ll have to inform yourself about your specific situation.
Conclusion
The process in itself is very simple:
- Choose coins you believe in using fundamental analysis
- Find the right entry point using technical analysis, or DCA
- Put your assets to work
- Take profits and reinvest, or enjoy them
However, it requires a lot of work, especially in the beginning. This strategy is meant for people who don’t want to rely on luck or advice from others and are willing to put in the work to make sound investment decisions.
What do you think about this strategy? Did I miss anything? I’d like to hear your thoughts.
Finally, here is an interesting article about the current bull market by another author. I think this will help you get a more realistic picture regarding the hype of cryptocurrencies:
Disclaimer: I’m not a financial advisor. All the information contained in this article is for educational purposes only and should not be understood or construed as financial advice.
