The third in our series of personal finance articles, we’ll now be looking at the topic of how to get the most out of your crypto investment. In articles one and two we talked extensively about the best ways to save money, some different places to invest your money, and why crypto represents an attractive option for investment. You may already be interacting with the bitFlyer exchange, or you might be just wondering how to make your crypto investments really work for you. In either case, you will surely get some ideas on maximising your investment ability.
Day Trading is for the Experienced
Day trading with cryptocurrencies works in exactly the same way as if you were to do it with conventional stocks. Day trading is characterised as extremely short trading with an eye solely on maximising profits. While some people may hold assets for months or years, day trading involves constant buying and selling. Crypto day traders may hold onto their newly acquired crypto for hours, minutes or in some cases, even seconds, taking advantage of minute changes in the market. While for some people this style can bring success, it also involves experience, risks, and an obsession with every movement that the market makes. If you have strong nerves and consider yourself somewhat of an expert, day trading might be for you. If you’re a beginner, stay away!
You Don’t Need to HODL
On the opposite end of the scale to day trading, you have seen some people talking about HODLING. Appearing on a crypto message board as Bitcoin’s price dipped, an unrepentant crypto owner proclaimed that they were HODLING (a misspell of holding) their Bitcoin until the price picked up again. Is this a good strategy? Probably not. Sheer hope and a dogmatic attitude to Bitcoin is not going to help you make successful trades. You don’t have to sell everytime there is a dip, but if you think it is time to shift your crypto, don’t be afraid or hold on for the sake of sheer pride, you can buy some more later when you believe the market will pick up.
Our advice, start slow, monitor the markets, and buy or sell in a measured way after appraising your performance. Slow and steady wins the race.
Diversification is Not a Cast Iron Rule
Diversification is the practice of investing smaller amounts in different areas, and is commonly accepted as a good way of covering yourself. If one investment rapidly depreciates, there will be other more stable ventures that ensure the entire ship doesn’t sink. However, with cryptocurrency, there are two competing schools of thought:
- Yes, you should indeed diversify, but do so with caution. As we touched upon in our last article, there are many altcoins (coins other than Bitcoin) out there, over 2,000 in fact! The novelty coins are easy to spot, but there are others that purport to be the next big thing, when in fact they are built on some very shaky foundations. If you do your due diligence and believe in a project that a particular coin is linked to, you can tentatively invest, but only after finding out the answers to these important questions:
What project is behind this particular coin? Who is promoting it and in which context?
How much money has been poured into this project?
How volatile is the coin?
Has the coin been in a constant downward spiral ever since its release?
How liquid is the coin?
What do the reviews say?
- No, don’t diversify, stick with Bitcoin. Many of the people that invested in Bitcoin and got rich quite predictably claim that Bitcoin is all you will ever need. While this may be a biased opinion, many of the big investors such as billionaire hedge fund manager Bill Miller explain that due to Bitcoin’s size, and continued interest and investment in it, it is more stable and likely to weather the recent market downturn better than the scores of altcoins on the market. At the time of writing Bitcoin holds a 52.5% market share, with many investments in altcoins predicated on Bitcoin’s performance. If Bitcoin rises, the others will rise. If Bitcoin falls, the others will fall, what’s the point of diversifying?
These two opposing ideas have appeal to different people, depending on how much money they wish to invest, whether they want to support a smaller promising tech project, or whether they have more or less appetite for risk. Nothing is ever guaranteed in the world of investing, but if you want to start small, probably best to start with Bitcoin.
Try Dollar Cost Averaging (DCA)
If you want to stay on the cautious side or haven’t been following the market so intensely, you may want to try dollar cost averaging. The idea behind this strategy is that if you invest small amounts daily, you will get a better average price for your cryptocurrency. Invest all your money in one day and you could be lucky, with the price rising from then on. However, the price may sharply drop, leaving you out of pocket in a big way. Dollar cost averaging will make sure you can weather the inevitable troughs that occur before the next peak, as you haven’t bet everything on one day’s particular price.
Store Money Securely
A common statistic cited towards the end of 2018 was that 54% of exchanges have security flaws. While the remaining 46% of exchanges met the desired security parameters, it still doesn’t guarantee absolute safety. How many exchanges have the security to repel hackers who have already made off with at least $1.3 billion worth of cryptocurrency from 31 exchanges. Security is something you need to take seriously, which is why bitFlyer has taken every precaution to keep customers’ funds safe. With multi-signature authentication, internal systems protected by the most advanced encryption and firewalls, registration and compliance with all European crypto statutes and stellar customer support, bitFlyer gives its users every reason to feel secure.
Avoid Emotion and Go by Statistics
Human beings are fragile, easily led and with the benefit of hindsight, can be found to have done some very counterintuitive things. The constant competition between our rational and emotional selves can seem difficult to overcome, but patience and a well thought out strategy can help counter any disastrous decisions. FOMO, or Fear of Missing Out, may cause you to jump in if you see a quick market change and others acting. First look at what the statistics are saying; frenzied speculation is what caused Bitcoin to rise so quickly, suffering a reputation hit when it began to come back down.
Watch Changes in Regulation Around the World
Did you hear the one about the Swedish Bitcoin trader who caught the eye of authorities and received a tax bill of almost $1m? As cryptocurrencies become more regulated, strange cases like this are starting to pop up around the world. While regulation provides safety and security, it can also bring some nasty surprises for people who are not aware of rules specific to their country or region. The European Union has been diverting more and more resources towards the research of cryptocurrencies, hoping to tackle the illegal and unethical practices associated with them. Make sure you at least know the basics, so that in this coming year you won’t be the subject of an eye grabbing crypto legislation headline.
Use Fiat Currencies as a Benchmark
If you have one cryptocurrency, tracking it against the US dollar for example is common sense. However, once it comes to purchasing altcoins (which sometimes only accept Bitcoin for payment), people start to judge it against Bitcoin and confusion can set in. If Bitcoin loses value it may appear that the other currency you have purchased with it has risen, however, its value may just represent a larger total of the now devalued Bitcoin. To avoid these confusions, better to just use the common fiat currency of your country as a benchmark. It is something you are familiar with and you can easily apply it to all currencies.
Never Put in More Money Than You Can Afford to Lose
This point goes back to the common thread running through this series of personal finance articles. Cryptocurrencies can represent an attractive investment, but it is not a smart move to put your house on them. Once you have saved some money, done your research and chosen an exchange, then you can start by making a small initial investment. Maximising your investment through day trading and diversification are things that you don’t need to think about initially. Incremental use of your spare cash that you have set aside for investments will allow you to build confidence, which you can then use to move on to more sophisticated trading techniques. The phrase “play smart, not hard” is definitely applicable in the crypto arena.
Conclusion - Make Sure You Buy and Sell at the Right Time
This is a commonsense point, and if everyone knew how to predict what “the right time” was, no one would lose any money. While this last subheading is a bit tongue in cheek, the idea does go back to the fundamental points we have raised in this article. Don’t HODL just for the sake of it, make a point of checking the markets frequently. Don’t listen to anecdotal evidence, trust the statistics and show some patience. So what are you waiting for, you now have the knowledge you need to go out into the crypto world and begin trading. With bitFlyer your funds will be right there, when you need them, with exchange fees at a low 0.15%, and withdrawal fees set at 0.0004 BTC. If you want to sell quickly, there are no problems with liquidity and through our excellent customer service, you’ll know that we have your back. To get into the mechanics of your first trade, check out some of our other articles or have a go at our test platform, where you can take advantage of detailed tutorials explaining exactly how to navigate the platform.
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