Underrated Cryptocurrency Investing Strategies in 2021
Cryptocurrency investing can either be complicated or straightforward, depending on your strategy, goals, and risk appetite. You can go the easy way of buying and essentially forgetting about your crypto for years (also known as hodling). On the flip side, you can also go full-force with day-trading -- sitting on your computer all day to monitor the market and execute trades according to your chosen game plan.
Many of us fantasize about successfully making one winning trade after another and multiplying our capital in a matter of days. But if this were easy, everybody would be crypto millionaires by now.
The truth is, cryptocurrency investing is fundamentally tricky. While yes, you can HODL to protect yourself from risk, many also know that this isn’t the most productive way to make money in crypto.
The crypto market is highly volatile, which is a double-edged sword. On the one hand, the market’s high volatility means there are plenty of opportunities to buy low and sell high. On the other, you’re exposed to more risk due to swift and unpredictable market movements.
Why have a solid cryptocurrency investing strategy?
Cryptocurrency investing not only becomes more streamlined with the right strategy, but it also gets exposed to relatively fewer risks. A sound, airtight plan makes you less likely to buy or sell because of your emotions.
Every cryptocurrency trader knows that controlling your emotions is the key to profitable trading. When you don’t have a set of predetermined rules to follow, you’re more likely to either panic because of fluctuations in your portfolio or give in to FOMO and FUD, pushing you to make reckless decisions.
How do most people invest their digital assets?
It is impossible to lay down any hard and fast rules on which strategies for cryptocurrency investing are right or wrong. However, several strategies are very well-known among the crypto community, such as:
While these abovementioned strategies are strong in their own ways, many people fall into the trap of thinking that these are their only options. But this can’t be farther from the truth!
You might be doing your portfolio a disservice by boxing yourself within these popular strategies. So before you decide on a cryptocurrency investing blueprint to follow, make sure to explore as many possible options as possible.
And with that, let’s talk about some underrated strategies for crypto investing!
Underrated strategies for cryptocurrency investing
Algorithmic trading is, as the name suggests, the use of algorithms or a pre-programmed set of instructions to execute buy or sell orders according to specific rules. These rules may involve meeting certain criteria, such as:
- Reaching a certain price
- Reaching a specified percent rise or fall in the asset price
- Observing a particular market trend or movement
These are just three examples. But all in all, algorithmic trading is all about automating trades based on a specific set of indicators. Algorithmic trading typically involves cryptocurrency trading bots like Cindicator’s Stoic to execute trades on your behalf automatically.
Algorithmic trading is undoubtedly not as widely used as a strategy compared to hodling or DCA, but it offers many advantages:
- It takes emotions out of the equation, so you’re protected from making costly mistakes because of FOMO or FUD.
- It allows you to engage in high-frequency trades even when you’re not actively monitoring your computer.
- It makes it possible for your portfolio to benefit from the ability to execute trades instantly within such a fast-paced market like crypto.
- It actively looks for promising opportunities 24/7, something unassisted human traders and investors can’t possibly do.
Just to give you an idea, Cindicator’s Stoic bot’s algorithm has had a successful run ever since it was first launched in early 2020. With gains in 2020 that beat that of Bitcoin and the S&P 500, it allowed thousands of crypto investors to grow their money with minimal effort and zero complications.
Find it hard to believe? Check out the Stoic bot’s Q1 2021 performance report here, and see it for yourself!
Yield Farming (in Decentralized Cryptocurrency Exchanges)
Yield farming is the practice of earning a passive income with DeFi by putting your crypto assets to work. Also known as liquidity mining, you can earn a yield through this strategy by:
- providing liquidity to DeFi exchanges
- using borrowing and lending protocols
- participating in DeFi platforms to earn trading fees or governance tokens
Admittedly, this underrated cryptocurrency investing strategy is not as beginner-friendly as algorithmic trading. For one, decentralized finance is usually regarded as an intimidating subject by most casual traders. Whereas there are algorithmic trading bots like Stoic that are plug-and-play and immediately usable out of the box, yield farming through DeFi requires you to spend a reasonable amount of time learning all about decentralized exchanges and how they work.
Because DeFi is so new, the risks include the complete loss of funds. If there is a bug in the DeFi platform, anyone who notices it could exploit the protocol, resulting in massive losses for users. Rug pulls or a sudden removal of liquidity can also cause an immediate crash in the prices of farmed or staked tokens. Finally, positions with leverage could be liquidated if prices move against you: for example, a 10x leverage, you lose the whole position if the price falls by 10%.
Still, if you want to dip your toes into the world of DeFi, yield farming is a worthwhile cryptocurrency investing strategy to look into.
Portfolio rebalancing is done to maintain specific asset allocation percentages in your portfolio. Say you have a crypto portfolio with five different coins or tokens. Because the crypto market is volatile, each coin will grow or decline at varying rates. This means the division of your portfolio at any given time will likely be different from how it was when you first started your investing journey.
Here’s a graphic to illustrate:
In portfolio rebalancing, coins are traded such that your portfolio re-aligns and goes back to the allocation percentages that you specified initially. This allows you to potentially improve your held earnings by using price fluctuations to your advantage.
For example, let’s say a particular coin in your portfolio performs exceptionally well. Rebalancing your portfolio will redirect your gains from that coin towards your “cheaper” assets. So even if the good-performing coin returns to its old price, you would have benefited from a net positive gain over this period.
Sounds complicated? Well, you’re in luck. You can use crypto bots to automate portfolio rebalancing, just like how you can use them to buy and sell assets. The Stoic bot is one such bot that does smart rebalancing automatically.
Investing Digital Currency: Conclusion
Popular crypto investing strategies like hodling, swing trading, and DCA have their merits, but the misconception that these are your only options can keep you from making the best possible returns from your crypto investments.
Underrated crypto strategies like algorithmic trading, yield farming, and portfolio rebalancing can provide you with unrivaled opportunities to grow your earnings with relatively minimal effort. Of course, as with all other strategies that involve risk, you should do your research. That way, you can smartly decide on the best strategy (or combination of strategies) for you.