How to profit from cryptocurrency?
Given the recent hype ‘cryptocurrency’ is getting, you might likely have already heard different versions of what it is about and you might have already thought about investing some amount in hopes of earning some profits. But most times the dilemma isn’t in what Cryptocurrency is about but ‘which is the best cryptocurrency to invest in?’ and ‘how and when to invest in cryptocurrencies’.
This article contains some useful information concerning investing in cryptocurrencies and can be used as an investment guide. Investing is a skill that comes from persistent market activities and it takes some real knowledge to devise and evaluate financial decisions. Before we dig deeper, it is worthwhile to realize that one should only invest that amount which he can afford to lose. It is important to conduct your research and not solely rely on any review or analyst’s opinion. Finally, a word of advice is that the best time to invest in Bitcoin was 10 years ago, the second-best time is today (Cryptonite, 2019).
The ‘Blue-Chip’ altcoins
There are many different cryptocurrencies other than the famous Bitcoin, which are commonly known as altcoins (alternative coins). As a starter, when a person begins to look for options to invest in, it is highly recommended to go for the Blue-Chip altcoins. Blue-Chip altcoins are those coins which have a market capitalization of over $2 Billion, and for this reason, are considered to be a safe investment as they cannot fail overnight. Cryptocurrencies with over $2 Billion market capital are Bitcoin, Ethereum, Ripple, Bitcoin Cash, Litecoin and EOS.
Some analysts, however, argued that cryptocurrencies with a market capitalization of even $30 million qualify to be blue-chip altcoins as well. These include crypto-tokens like Cardano, Tron, Monero, Dash, and Tezos.
Previously, most of the crypto-currency exchanges offered different altcoins in exchange for Bitcoin or Ethereum only. However, in the race to be the best in the crypto-universe, many exchanges are introducing initiatives that will allow users to buy altcoins directly in exchange for cash. Exchanges like Binance, CEX, BitPanda, and Coinbase offer Bitcoin, Ethereum, Bitcoin Cash, Litecoin, Ripple, Dash and other altcoins in fiat currency pairs.
When to get in the game?
There are two rules regarding this:
1. The right time is now
The price of a cryptocurrency in the future is highly unpredictable. It depends upon you; if your sixth sense feels confident about the future of a cryptocurrency, it would be wise to invest some amount in it as soon as possible to get started.
Also, the world of cryptocurrencies is moving at a fast pace, and as long as you have chosen a good technology to invest in, it is very likely to reap the fruits of what you will be sowing today. It will surely provide you with good returns in the long run.
2. Neither be greedy nor fall into dismay
What usually happens is that a price drop in the cryptocurrency market is followed by a rebound, and every price hike is followed by a correction. People tend to panic in the former situation, and become greedy in the latter. This should be avoided and investors need to understand how the market works. Be patient and do not sell your investments simply because there was a market crash. On the other hand, pick a reasonable time to exit the market and don’t wait too long in events of price hike as what is going up is bound to settle back to some extent.
Another great time to buy a cryptocurrency is when it is in the accumulation period. This period happens when you see a cryptocurrency moving very slowly in an upward trajectory. This steady motion signifies the strengthening of the coin and an absence of any abnormal behavior.
Buy Low, Sell High
That is the essence of every cryptocurrency trade. Buy crypto-tokens when they are cheap, and then sell them off when there is an increase in price. However, if you could not buy-in on a new cryptocurrency at its lowest price that doesn’t mean you can no longer invest in that Cryptocurrency. Almost every project takes a considerable period to mature and reach their full potential, meaning that you can still earn big with other cryptocurrencies.
To take some perspective from Warren Buffet, he says “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. This simply means when buyers are greedy and keep on buying, they are artificially causing a rise in the price, which is bound to correct itself shortly. Be cautious of such an event and do not just throw in your money, because it is very likely that you might end up with less than what you had invested. Secondly, in events of a market-crash, the first thing to do is not to panic. Get yourself together and exercise patience. Sooner or later, the cryptocurrency will rise again and it would be wise to wait for your investment to return to its original value, rather than selling it out prematurely.
Hodling is a term used very often in the crypto-community, and it means to hold on to your investments for a long time without giving up to the urge to sell. HODL originated from a meme in the crypto-community which means to Hold On to your Dear Life.
According to many investors who have made it big time through crypto-investments, it is best to buy and then forget about your cryptocurrency for a long time. Especially, if you are a beginner, it would be highly recommended to just hold on to your investment instead of trading regularly.
Other very common terms used by the crypto-community include:
ATH – All-Time High, the peak value of a cryptocurrency
Bull Market – A market where the prices are rising heavily
Bear Market – A market where the prices are falling
Sats – Short for Satoshi, which is about 0.00000001 Bitcoins.
Walls- When there is a considerable gap between buying and selling orders. If buy orders are much more than the sell orders, it is known as buy wall, otherwise, it is a sell wall.
FOMO – Fear of Missing Out, is a situation when investors keep on buying into a coin to avoid missing out on the price increases.
DYOR – Do Your Research
It’s all about profits!
A wise and recommended method to follow while taking out profits from your investments is the ‘Rake Method’. Every time your investment has increased by a certain percentage, you take out your investment, but not everything. For example, you buy crypto-tokens worth $10,000 valued at $1 each. When the price rises to $5, you have $50,000. You sell 20% of your investment, leaving the rest for further profit gains. Thus, you sell a part of your crypto-tokens at each goal met, and wait for another bull run to score big with your remaining tokens. Also, if the market falls back, you can buy more tokens with the same amount. This method offers a win-win situation.
How the market rises?
The price of a coin can increase for many reasons.
Firstly, it depends upon the demand and supply. If the supply of a crypto-token is scarce and it’s high in demand, its price will naturally increase.
Other than this basic demand and supply, some factors that cause a shift in the price valuation of a crypto-token include positive news, feedback, and reviews about the cryptocurrency. If there is some major development around the technology, or the cryptocurrency is achieving according to its roadmap and meeting all the deadlines, or it gets added to some major exchange, it will showcase an upward trajectory in the crypto markets.
Sometimes, pump and dump groups can artificially influence the markets. The influence is considerable especially on small and shady cryptocurrencies. Some analysts or hobbyists with a large following can influence people to take certain actions, which in turn causes the market to move in a particular direction.
For a realistic measure of the price of a cryptocurrency, a very easy formula is used:
Price = Market Capital / Circulating Supply
Staying updated with market
Several apps are available nowadays, which offer great insights into the markets. You can watch the prices of different altcoins, check how much profit or loss you have made on each of your trade, set alerts, targets, and triggers for automatic trading. The three most popular apps are Blockfolio, Coinfolio, and CoinCap.
Also, for recommendations and reviews regarding investment opportunities, you can follow forums like Bitcointalk and Reddit. Bitcointalk is a platform where cryptocurrency investors regularly discuss different cryptocurrencies, blockchain technologies, and scheduled ICOs.
Finally, as stated earlier, the need for personal research cannot be overemphasized, and the importance of trading according to your judgement is valued. Do not always rely on recommendations from other tipsters, since there are many pump and dump groups active online.
Cryptonite. (2019, April 20). Hackernoon. Retrieved from Hackernoon: https://hackernoon.com/how-to-profit-from-cryptocurrency-c58b93139db3