Bitcoins have created a buzz in the financial sector primarily because of the revolutionary idea that it is based on. It is a peer-based digital currency network without the governance or interference of any third party. It is an independent digital currency that works on the principle of decentralization of the power of the currency. There are specially trained coders who crack complex algorithms and solve difficult problems to help invest in cryptocurrencies like Bitcoins. There are many ‘rags to riches’ investor stories in the world of cryptocurrencies. There have been many successes among the investors and business tycoons have been investing in cryptos for quite some time now. Since its inception and gradual rise of popularity in the market, various strategies have been formulated for a successful investment in cryptocurrency. A few practised strategies which have earned good results for investors have been discussed below. The possible downsides of the same strategies have also alluded to.
Investing Strategies for Cryptocurrencies
Rupee Cost Average: Many investors have endorsed the rupee cost averaging strategy as a successful strategy for preliminary or novice level investors in cryptocurrency. The concept is more like accumulating bitcoins like an investment in the SIP of mutual funds. One might fix a particular sum to be deducted directly from his/her bank account on a particular day of each month to buy bitcoins and this might continue endlessly till he/she decides to stop accumulating and sell them. This does not need much attention and is more or less an automatic process. But this is not risky because till now there has only been a growth in the value of bitcoins. Downsides of this strategy might be traced during the degrowth of the currency. In that case, one might have to keep regular track of growth and degrowth of the value of bitcoins just like one keeps track of the funds he/she invests in for SIP.
Diverse Portfolio: Similar to investing in mutual funds, the risk is minimized when investing in different funds rather than investing the entire amount in a single fund. This ensures risk reduction and management so that if one fund incurs losses, the entire money invested does not go for a toss. Similarly, diversifying the investor portfolio mitigates the risk of losses in Bitcoin investment too. One can invest in various coins to diversify the portfolio. This strategy is also good for beginners in this sphere. The primary downside of adopting this strategy is that the investor is unable to maximize and get the best from the coin that is outperforming the rest, at any given point. The Solana project focuses on providing an alternative that will be able to handle huge amounts of transactions per second with lower latency and this features decides What is the price of SOL.
Non-Diversified Portfolio: Investing in the coins by checking on past performances is the primary focus of this strategy. By analysing the history of return, an investor can invest his/her majority of capital in the coins that have outperformed the rest in the past and lesser percentages of capital in the others. Each investment made, would be divided among the coins according to the pre-decided percentages of investment in each. This strategy is for investors who have extensively researched the past returns and follow the curve of investment in cryptos on a regular basis. This strategy is not recommended for beginners. The single most downside to this strategy is that the investor might invest in mediocre or low performing coins. But there is always a scope for changing investment percentages.
Reinvesting Profits: If an investor is not immediately reaping the benefits of the profits made, he/she can channelize the profits to be reinvested and earn more value. This is exactly like using your profit from the share market into buying more shares or investing in a promising mutual fund. This strategy is primarily for investors who are sceptical about the growth in value of the currencies. The downside of this strategy might be missing out on other better investments due to the wait for profits from a particular coin.
It is always better to strategize before investing but no strategy is foolproof. Therefore, it is important to check on QProfit App before investing.