Crypto investing: 5 highly effective strategies for your portfolio (2024)

Investments are the key piece of any financial planning puzzle. These investments could be in market-related instruments like shares, stocks, and bonds or financial institution-related savings and fixed deposit accounts or in gold, real estate, or avenues like art, fine wine, cigars, antiques, and other artifacts. A new entrant to this group is investment through cryptocurrencies.

Multiple reasons have contributed to cryptocurrencies outshining the more traditional forms of investment in recent times. Irrespective of which cryptocurrency or token a person invests in, some inherent characteristics of all cryptocurrencies have made them a darling of all, especially new-age investors.

For starters, any transactions involving crypto are extremely low risk because all crypto is devoid of control of any monetary authority or central bank. A big plus for crypto is that changing economic factors play no role in its rise or fall. Its decentralized position, reliability, and efficiency have made it one of the best and fastest options to increase your investment very quickly.

While a set of regulatory guidelines are yet to be established in India to follow when transacting in cryptocurrencies, the advantages and benefits cannot be disputed. Over the last decade or so, the mindset of investors has been changing, with many leaning more towards adopting cryptocurrency as their primary source of investment to gain significant returns. The skyrocketing advancement in the world of blockchain technology and fintech are to be given a lot of credit for getting more and more investors to switch to investing and transacting in cryptocurrencies.

However, investing in cryptocurrencies, like in other forms of investment needs to be done strategically, linking back to the financial goals of the investor. Given that this form of investment is still very nascent, there are several strategies that investors can choose from, but the ones given are not just popular but also successfully tried and tested.

1) Buy and Hold
The most popular strategy for investors in cryptocurrencies is Buy and Hold. Investors in this strategy hold onto their crypto investments for the long term. Investors following this strategy as part of their financial planning stay committed to the long-term potential and payout of the crypto. Popularly called the ‘Hold on Dear Life or HODL’ strategy goes a long way in testing the belief, resilience, and patience of investors.

2) Day Trading
The opposite investment strategy to HODL that has grown in popularity is the Day Trading strategy. In this strategy, investors are focused on small movements in the market and tailor their activity to make quick returns. A short-term strategy where crypto is purchased and sold in the trading session of the same day. This strategy has grown in popularity due to crypto being removed from any volatility of the financial markets, which can go a long way in making this a rewarding strategy to follow.

3) DCA
A strategy that forces investors into making savings is the Dollar Cost Averaging strategy, where people invest a fixed amount into cryptocurrencies at pre-determined intervals. This creates a routine in the lives of the investors like they would in the case of investing in other traditional forms of investment like an SIP or Fixed Plans. This regularity will help stabilise the crypto investment portfolio and regularise the ebbs and flows of the cryptocurrency market, which will help to customise and if needed, course correct the earlier financial planning strategy.

4) Buy Low, Sell High
A strategy that is fast gaining acceptance and is being adopted by many cryptocurrency investors is the simplest form of Buy Low, Sell High. Simply put, people invest in crypto when the price is low and hold on to the token or digital assets till the price has risen significantly, resulting in the possibility of a nice tidy profit. Getting this right, however, is not simple. To be successful in using this strategy, investors use tools and algorithms like indicators that analyse and track the movement of a portfolio of cryptocurrencies. The most common indicator used is the monthly or weekly moving average used to track trends over a specified time.

5) Arbitrage
Arbitrage Trading is a strategy where investors trade on multiple platforms or exchanges. In Arbitrage trading, investors purchase crypto on an exchange where it is priced lower than others, and depending on when they wish to sell, they will sell the assets on an exchange where the price is higher than the exchange where the crypto was purchased from.

The aforementioned strategies have been extensively tried and tested and have consistently shown high levels of efficacy in generating significant profits. It is recommended that investors conduct thorough research and implement the strategy that aligns best with their financial planning goals. It is imperative for all investors and traders to thoroughly analyze the potential risks associated with different strategies through diligent research before committing to a specific investment approach. Additionally, it is crucial to remain patient, maintain a long-term outlook, and prioritize staying informed on the ever-evolving landscape of cryptocurrency investment.

(Roshan Aslam is the co-founder & CEO of GoSats)