Cryptocurrencies have become a global phenomenon nowadays. Many people are curious to know if they can make a profit investing in cryptocurrency. The potential is still there.
So let’s walk through the tips you need to consider when it comes to investing in cryptocurrencies:
1- Research Before Choosing a Cryptocurrency
While buying a cryptocurrency, do not only consider the current rate as this index is highly volatile. It changes drastically within a few days or weeks. Instead, consider factors such as market capitalization and liquidity level.
A high market capitalization gives the real value of a cryptocurrency. Large-cap cryptocurrencies are safe investments to make.
Today, Bitcoin is the leading digital currency by market capitalization. Thus, it is considered as the top cryptocurrency. Platforms like Clovr are the leading gaming platforms powered by Bitcoins.
Similarly, a higher liquidity level means that you can sell a cryptocurrency at a faster rate at the market price.
2- Diversify Your Cryptocurrency Portfolio
Diversification in the world of cryptocurrency is one of the best ways to reduce the risk involved. However, some argue that it is not possible to diversify a crypto portfolio as altcoins highly correlate with Bitcoins. However, you will be able to navigate the market effectively with manageable risk, if you carefully select a basket of altcoins in conjunction with stablecoins.
Add stablecoins in your portfolio that has highly volatile coins and tokens. Then, fine-tune your portfolio by including derivatives on top of a long-only. You can also use structured products as a hedge in a down turning market.
3- Cryptocurrency Mining
There are two functions in the process of mining cryptocurrency. First, adding transactions to the blockchain and second, releasing new currency. The miners update the transactions that are made and also ensure the authenticity of the information. In return for their services, miners get physically minted cryptocurrency or crypto tokens by vendors of each transaction.
However, it involves cost. Cryptocurrency mining needs a computer and a specific program. As cryptocurrency has gained popularity and mining is now considered a lucrative business, most people around the world are showing interest in mining cryptocurrencies.
4- Day Trading
Trading cryptocurrencies requires the ability to read charts and understand technical indicators. Day trading is not just limited to holding assets until its value rises. It involves analyzing market charts on the performance of the assets.
Before you start crypto day trading, it is required to have a structured approach and a rule-based strategy. It requires the right timing and good liquidity. Once you pick cryptocurrencies with high volatility and high liquidity, use the Money Flow Index to track the activity of the smart money.
5- Use a Stop-Loss Strategy
Stop-loss is the benchmark or level of loss that you can incur where the trade will get closed. Long-term investors can be profitable by holding their assets but could have cashed out to huge gains when markets peaked.
Use a stop-loss strategy that can help you minimize losses. When there is a sudden unexpected price fluctuation in a stable market, liquidate all your crypto assets. When the cryptocurrency market is highly volatile, liquidates a specified proportion of the digital assets.
It is crucial to have a realistic outlook as to what you can make and how much you can afford to risk. You must understand and apply technical analysis to figure out suitable entry and exit points to make a profit. Follow the above tips and strategies that will help you increase your profitability while investing in cryptocurrencies.