Disclaimer: This is for informational purposes and is not meant to serve as financial or investing advice.
Overview: 8 Best Crypto Investing Strategies
Choosing the right investment strategy for a beginner crypto investor can be daunting. There are many different cryptocurrencies and blockchains which you can incorporate into short-term or long-term investment strategies depending on your goals in the crypto market.
And there’s a lot of noise in the cryptocurrency market around different investing strategies. Each podcast, Youtube video, and crypto enthusiast seems to have a winning cryptocurrency investment strategy.
With so much information to sift through daily, you need a rock-solid investing strategy to rely on. Here are Pluto’s eight best crypto investing strategies and how to use them.
1. HODL (Buy and Hold)
Buying holding or HODLing is an essential strategy for the hands-off investor. HODLing is a crypto trading term that means buying and holding a cryptocurrency over a long period of time.
HODL is often thought to stand for “Hold On for Dear Life,” meaning buying crypto and not selling despite volatility and market conditions.
HODLing is the most straightforward strategy for passive investors who don’t want to do a lot of research and constantly check charts and price swings.
It is a misspelling of the word “hold” from an old Bitcoin forum where the commenter is manically describing his BTC accumulation.
2. Value Investing
Value investing is when you buy crypto assets that you think are undervalued by the market and sell when they increase to the price target. In addition to traditional technical trading indicators, you can look at metrics like unique wallets, transaction volume, or TVL.
TVL is short for total value locked and refers to the dollar amount of cryptocurrency locked in a protocol. This can be useful for evaluating the growth of a DeFi protocol.
High transaction volume can help you identify undervalued crypto marketplaces. Those can be DEXs (decentralized exchanges), CEXs (centralized exchanges), or NFT exchanges. All three types usually have tradeable tokens.
Finally, unique wallets or users are a great way to evaluate the growth of the protocol and its token holders. You can find these metrics using a blockchain explorer and the token’s contract address.
3. Dollar-Cost Averaging
Dollar-cost averaging or DCA-ing is a way to even out your cost basis for a crypto asset. It also takes the emotion out of your buy orders.
Here’s how it works: using a crypto exchange like Coinbase or Binance, you set up an automatic transaction to buy $100 worth of Bitcoin every two weeks.
It’s that simple. And you can use this strategy with altcoins too. Although, you may need to manually do those transactions if the altcoin isn’t on A CEX.
The benefit is that you can build a sizable long position without worrying about price fluctuations.
4. Buy Low, Sell High
“Buy low, sell high” is like value investing; you buy undervalued tokens and then sell them when they are valued appropriately.
It's more about timing market cycles than value investing. For example, if the cryptocurrency market is dipping, you could buy Bitcoin and sell when it reverts to post-crash levels.
After a bounce, tokens usually lag behind the rest of the market and don’t regain price levels immediately. This is another opportunity to buy low and sell high.
Buying low and selling is easier said than done. When the market is choppy with low volume, it can be impossible to profit with this strategy.
5. Minting NFTs
Minting NFTs is a way to profit from speculative investing in digital assets. “Minting” simply means the creation of an NFT on the blockchain.
By interacting with an NFT minting contract, you can pay crypto in exchange for a brand-new NFT. NFTs are generally minted in a limited collection of a few thousand, typically 10,000 or fewer.
Once they are “minted out” (sold out), no new NFTs can be created from that collection. The NFT secondary market is where NFT traders make speculative trades for NFTs. Like cryptocurrency traders, they form theses on why NFTs are under or overvalued and make trades.
Most NFTs are bought and sold on Opensea. Opensea is a smart-contract-based NFT marketplace that started on Ethereum. It’s now available for use on Arbitrum, Polygon, and BNB.
Whitelists gate many hyped NFT mints. Whitelists are lists of wallet addresses approved to use the minting contract.
The use of whitelists artificially drives hype around NFT mints and can lead to a spike in secondary prices. So getting on NFT whitelists by joining the community Discord or entering raffles can be a profitable way to “whitelist grind.”
6. Balanced Portfolio
Portfolio diversification is a critical way to hedge risk. A balanced portfolio allocates capital to major cryptocurrencies like Bitcoin and Ethereum while taking smaller bets on altcoins and NFTs.
It’s also essential to keep a percentage of your portfolio allocation in stablecoins to invest when the market dips. One way to do this is to take profits in stablecoins.
Many investors always keep a target percentage of their crypto portfolio in stablecoins. This forces them to take profits to keep their portfolio balanced.
7. Airdrops and Altcoins
“Airdrop mining” is a strategy to earn free altcoins for being an early user of a protocol. Airdrops are a way for new projects to reward early users and distribute their initial token supply.
For example, completing several swaps on a new decentralized exchange may earn you 1,000 airdropped tokens. Now those tokens could end up being worthless, but if the average airdrop is worth more than the transaction fees it costs to earn them, that’s a profitable strategy.
Many altcoins offer staking opportunities. Staking is when you lock up some liquidity in a smart contract in exchange for interest.
The interest or “yield” is usually paid out in an altcoin. But it can come in the form of stablecoins which might be preferable if you want to reduce volatility and risk.
Influencers sometimes portray yield farming as a cheat code to build passive income. In reality, it is a high-risk strategy.
You give up custody of your coins by loaning them out in exchange for speculative yield. To yield farm safely, you need an ironclad strategy of when to enter and when to get out.
8. Follow the Whales
Most blockchains are public, meaning anyone can query transactions and track specific wallets. A popular strategy is to tag wallets with many crypto assets, also known as “whales,” and follow their trades and movements.
Whale watching usually takes place on EVMs (meaning a blockchain using Ethereum Virtual Machine architecture) like Ethereum and Polygon. But you can track trades on any public non-EVM like Cardano or Solano.
You can use tools like Etherscan to query individual Ethereum wallets and transactions. Or you can build out or borrow a whale tracking dashboard on a site like Dune Analytics.
This can be a suitable method for discovering new tokens or timing trades, but you should not copy trade blindly. Whale watching should be used as an additional indicator or confirmation of a trade idea.
For more information on whales, check out our guide to crypto whales.
How Do You Invest in Crypto?
You can purchase crypto on exchanges like Coinbase or Binance. Some payment apps like Cash app and Venmo offer crypto purchases as well.
Buying from a crypto exchange is the most common route and can offer the most options for trading. To use a crypto exchange, sign up with an email address, enter your address and driver’s license, and connect your bank account.
Once you set up your account, you can add USD and start trading cryptocurrency. Make sure to learn the ins and outs of your exchange, as they’re all a little different and have various useful features.
How Can You Choose the Right Cryptocurrency?
Picking the right cryptocurrency to invest in can feel like a long quest. It’s a balance between being early to invest and not being too early for it to play out.
The “right” cryptocurrency fits into one of the aforementioned trading strategies and suits your risk tolerance.
Here are some points you should consider before investing in a coin.
Founder and Team
Even though this is Web3, credentialism is still helpful in the savvy investor’s toolkit. Here are some looks to look for in a cryptocurrency team:
Are they Doxxed? One of the principal values of the cryptocurrency community is anonymity. Being able to conduct transactions without identifying yourself is a common goal.
Anonymous or pseudo-anonymous founders have created many significant cryptocurrencies and crypto products. But even anonymous founders have an online reputation that can be vetted.
Utility and Product Reviews
Youtube is an excellent place to look for reviews and tutorials on crypto products. There are many paid shills on Youtube, so it’s best to verify any information on the site.
Other sources for user reviews are Twitter and Medium. Search for the crypto’s name or cashtag (i.e., $XRP) on Twitter to see what users are saying. Medium blog posts are also an excellent source for writeups on crypto products.
To understand the utility of a cryptocurrency or crypto product, you should first use it yourself. Then look at on-chain metrics to see if other users are sticking around.
Future Prospects and Past Performance
“Past performance is not indicative of future results.” This is a standard disclaimer in the finance world and the crypto world.
Historical price data is essential to understand the big picture of a crypto token. But just because a token reaches a specific price doesn’t mean it will match that price again.
“Technical analysis” is the dark art of using charts and indicators to guess price movements. There’s no guaranteed formula based on past performance to chart future prices.
Traction and Timeliness
User adoption is a crucial metric for crypto tokens. You can check metrics like token holders and token distribution on blockchain explorers.
Many communities also have pre-built dashboards for important KPIs. An excellent place to check for these is the community chat.
Another way to check traction is to read up on the project’s fundraising rounds. Who led the round? What are investors’ track records like in crypto?
Looking at a coin’s competitors is helpful for benchmarking performance and user adoption. If a competitor is much larger might represent the ceiling for the project you’re investing in.
If user metrics are down for your project, you can look to competitors to see if it’s an asset-class-wide phenomenon. An excellent website to compare the potential growth of cryptocurrency is MarketCapOf.
Enter the cryptocurrency you are thinking of investing in, then enter a larger competitor. The site compares the two market caps of the tokens so you can gauge the potential growth. Of course, growing to a competitor’s market cap isn’t guaranteed.
If there’s room in the category, charting a competitor’s path from start to finish can give you a great roadmap of what to look for in an investment.
Will Crypto Still Be a Good Investment in the Future?
Crypto is a growing ecosystem of technology and users reimagining the financial system. As long as crypto exists, there will be investment opportunities.
Those opportunities can increase or decrease! Right now is the best time to start researching and learning about crypto investing strategies.
The Bottom Line
Getting started in crypto investing can be intimidating. An excellent way to start is to pick a strategy, learn it and stick to it.
Basic strategies like buy and hold, DCA, and value investing are beginner friendly. Strategies like airdrop mining, NFT minting, and whale watching can be more complicated but can supplement a standard trading portfolio.
Looking to get started with crypto investing? Check out Pluto today.