There’s nothing simple about investing, even when it concerns familiar things, like shares in large companies, precious metals or obligations. You need to constantly keep your finger on the pulse, and buy or sell in time.
Investing in the world of cryptocurrency comes with a host of similar difficulties, each with their own particularities, which are multiplied by the far greater speeds involved.
Cryptocurrency expert Alexei Antonov, one of the first professional, global investors in blockchain startups and co-founder of the project SONM, shares the 5 investment tactics you need to know if you’ve decided to invest in crypto.
Many retail investors are looking at investing in blockchain as nothing more than a run-of-the-mill purchase of cryptocurrency in the anticipation of growth, like with Bitcoin.
In fact, buying and holding popular coins is just the tip of the iceberg. There are other cryptocurrency investment tactics that can be more effective, so let me tell you a little about the ones I use myself.
You need to understand that “investing in crypto” is not just about buying speculative coins, which consist of marketing and promises, though sometimes this really is the case. It’s better to regard deposits and investments in blockchain cryptocurrency as the purchase of a share in future protocols, on the basis of which entire industries will be built and projects will be launched all over the world. Perhaps very expensive projects.
And by investing in cryptocurrency, we are investing in the protocols on which the future will be built, like investments in cellular communications in general or in TCP/IP. It is as if you had the opportunity to invest in mobile phone technology itself, and receive a commission for every call made with every operator.
With blockchain technology this has become a real possibility. Only there is one problem: there are hundreds of these “ mobile phone technologies” being developed, and which of them will take over the world, if they take over the world at all, is an open question – and a huge risk.
Blockchain markets are far more global than the financial markets as a whole. everything that is linked one way or another to cryptocurrency has existed in a global information field from day one and has no clear geographic or national ties.
The creators of a project are often scattered around the whole world, German startups trade on the Hong Kong exchanges and so on. Trading goes on 24/7. There is no pause for the exchange to close until morning, no time to catch your breath a little, adjust your personal strategy or even just get some sleep.
Everything is taking place here and now.
The high speeds inherent to the industry and the very experienced players involved are both against you. In the places where the big money begins, be in no doubt that the crème de la crème will be trading against you.
There is no time to target and assess a project normally. It might have first appeared on the horizon 3-4 days ago and you need to make a decision to invest in it or not, at almost the same moment you found out about it.
On the one hand, it’s precisely investments like this that give the best returns (“be the first to believe first and the first to evaluate new technology” and exit just a month later with double or five times your money).
But on the other hand, this kind of speed in decision-making and evaluating projects will spawn numerous errors, since 90% of projects cannot be characterized as anything other than junk.
The reverse situation is also a problem: you can have your analysts work for a month and have strong confidence both in the quality of the code and in the good intentions of the team, but not succeed in getting into the project on time.
5 Cryptocurrency Investment Tactics You Should Know
The 5 main cryptocurrency investment tactics, which are available to everyone and which I use myself, can be categorized as follows.
1. The Classic: The Notorious Buy-and-Hold
You buy what will increase in value over time. There’s no need to consult a fortune-teller here: if you want to get some exposure to cryptocurrency, a logical starting point is to acquire several key assets, such as Bitcoin or Ethereum, and forget about them for half a year or more.
It’s a good idea to supplement these coins in your portfolio by adding projects from an industry you are well-versed in such as cloud computing, AI, ecommerce, and cyber security. In the long run, if you can buy into projects working in an industry in which you have expertise, that will help you to adequately assess the project, add it to your portfolio, and not waste time on pointlessly moving money around.
A well-balanced strategy usually means having half your portfolio in Bitcoin, as the universal barometer for the state of the cryptocurrency market. Historically, this tactic has never failed.
As far as taking part in an ICO is concerned, for beginners, I strongly recommend abstaining.
Thanks to all the promotion and hype, a new investor may get the impression that participation in an ICO will bring huge profits. I would advise an investor like this to take part in an ICO only if they have a team of analysts – what’s more a good technical team – which will help to thoroughly analyze each project and its risks, in order to understand whether there is any point investing or not.
Strong, reliable links with the founders of a project also won’t do any harm. Because investing in an ICO that you’ve seen advertised on Facebook and you liked as an idea is a tried and trusted method of losing your money.
If you wish to add speculative projects to a buy-and-hold portfolio, better to forget about ICOs and choose several coins that are already being traded, not in the most popular category, with good potential to break into the top 100 in terms of market cap.
You can park your capital in these coins for half a year or more and sleep peacefully at night, instead of waiting for a listing and a crazy fluctuation (which way?) for a project that has only just issued a coin.
2. Bitcoin Derivatives and Top 20 Coins
Simply buying positions and holding them is not enough.
You need instruments for hedging risk, since the market, alas, is not capable of growing forever. There is a huge number of futures contracts available for various coins, and if you want to feel more confident in the game, it’s better to master short positions, which is far simpler than trying to sell back into dollars each time.
The diligent trader will also be helped by the presence of various options, swap contracts, and margin trading — instruments from the classic financial markets are rapidly penetrating the crypto world. They allow users to build an optimal strategy for any risk appetite and can help investors from not shedding tears, as woeful investors did in January and February this year.
3. Opportunistic Investing
The biggest money in cryptocurrency is made in areas that are currently beyond the reach of the regulator, specifically semi-insider trading.
When you follow projects exhaustively, read social network posts, talk to the teams, understand who is going to do what, when and why, this gives you the opportunity to take up the necessary positions and make a bumper profit.
And don’t pay any attention to technical analysis, which you can simply forget about.
At the moment, the blockchain markets are subject to massive manipulations, from the most expensive projects to the tiny coins with a capitalization of a couple of million dollars. Depth of market data reacts sensitively even to individual tweets from founders, not to mention the large marketing campaigns that are kept hidden from the public eye until the time is right.
A strong team of technical experts won’t hurt; only with an understanding of the general technological map can you understand what project has just invented the bicycle wheel in Vancouver at the same time that in Seoul they are already putting the finishing touches to an entire bicycle.
This understanding can help you to have a much better chance of making the right decisions.
Arbitrage is a wonderful opportunity to profit from money that is lying around doing nothing. Lying around in cryptocurrency, please note.
In crypto, arbitrage bots are far more productive than in the real world; anything from 5% to 20% is made per month at a minimum risk – the risk is only on the exchange or technical force majeure, like an intervention by a state watchdog or regulator.
The essence of it is simple: the same token may have a different price on different exchanges. You can buy them on one, and at the same time sell them on another.
The creation of arbitrage bots is a simple task for a team of qualified programmers, though there are also ready-made solutions available on the market. It’s not always possible to turn large profits, but for a novice investor with a brain it’s not a bad place to start.
5. Not Just Tokens
There are projects that are somehow tied up in crypto, but at the same time for which investment does not mean buying tokens. For instance, you invest in the shares of a company that is introducing blockchain technology into real life or is servicing the development of technology one way or another.
This could be an an electronic cadastre based on blockchain, blockchain media, a service company with a focus on blockchain teams, a payment system or an exchange – anything where real-world business intersects with new technology.
These usually represent far more understandable and reliable investments than risky tokens, plus such projects grow far quicker than ordinary companies from the sector.
It’s simply a sin not to be making money from the introduction of blockchain technology, for example in industrial production, if you’re well-versed in the topic. A company like this earns hard cash in dollars, but at the same time is growing steadily together with the blockchain market. The Coinbase exchange, valued at about $8 billion, is confirmation of this.
On the whole, investing in blockchain is a fascinating and dangerous pursuit, a bit like being a Caribbean pirate. At every step, there are both 1,000% yearly profits and investors who have lost all their money in highly risky ICO projects.
A cool head and sound calculation will serve you well. Remember that in any activity, a professional approach is required, and blockchain is not a fun hobby for the weekend – that is, of course, if you want to make money from it.