Crypto Investment Strategies: A Comprehensive Guide for Beginners

This is not financial advice. Cryptocurrency is unregulated in the UK; profits may be subject to tax; and the value of any investment could fall.

With the advent of technology, we have seen numerous investment avenues open up. However, none of them have caused as much hype as cryptocurrencies. Not only do they offer high returns, but the decentralization aspect creates a feeling of empowerment for individual investors. But let’s make it clear: crypto investing is not a get-rich-quick scheme. This requires careful planning, which is what this guide is all about.

gold bitcoin coin on background of growth chart

Understanding Cryptocurrency

Cryptocurrencies are often called “digital money”, but in fact, they are virtual cash because they don’t have a physical representation. The online form is the only one for cryptos. Another distinguishing feature of crypto is that coins are decentralized and operate on blockchain. 

Think of a blockchain as a public ledger where all records are shared and copied across a network of millions of computers. If you have any device connected to the Internet, you can be a part of this system. Blockchain got its name from the approach of recording user transitions — all of which go in chronological order, forming blocks connected in a growing chain.

What are the types of cryptocurrencies?

Equity tokens

They are typically shares of an actual company or equity in a property with terms being recorded on the blockchain. These tokens are very similar to traditional shares with the main difference being a blockchain record rather than a database or paper certificate. Voting rights are also issued with these tokens via the blockchain.

Utility coins

Project developers use them to raise funds, but they may also provide access to products or services. It is not considered ownership of an asset such as a capital token.

Intrinsic tokens

These tokens are digital forms of currency and only have intrinsic value to the extent they are valued by the market. They do not represent anything, they simply exist as cryptocurrency. Intrinsic tokens are also called “native” or “built-in” tokens and Bitcoin (BTC) is the most famous example.

Stablecoins

Asset-based tokens are backed by an underlying asset, something physical, such as gold, paper money, art, or precious stones. Users can request the underlying asset from a specific issuer by sending them a token.

Why Invest in Cryptocurrency?

Pros

  1. Cryptocurrencies have shown the potential for dramatic increases in value over a short period.
  2. The market never closes, meaning you can trade anytime.
  3. Thanks to the decentralized nature of cryptocurrencies, you have complete control over your investments.
  4. Blockchain technology offers transparent transaction history available to everyone.

Cons

  1. The prices can plummet just as fast as they can skyrocket.
  2. As governments catch up, there’s potential for restrictive regulation.
  3. The cryptocurrency world can be confusing and intimidating, especially for beginners.

Setting Investment Goals

Short-term vs Long-term

Short-term investing, or ‘day trading,’ involves buying and selling on quick movements within the market. Long-term investing, however, means holding onto your assets for several months or years. Both have pros and cons and the best approach depends on your investment goals, time commitment, and risk tolerance.

Remember to assess your risk tolerance when choosing a crypto asset to invest. High-risk coins can also offer high returns while lower-risk assets may yield smaller returns.

Researching Cryptocurrencies

Staying informed is critical to being a successful investor. Stick to well-known financial news outlets, follow influencers in the crypto space, and join online forums to keep up-to-date.

Always follow the market trends as the crypto market is volatile due to fast technological developments, changing buyer sentiment, and regulatory news. 

Where to Buy?

Cryptocurrency exchanges like Coinbase, Binance, and Kraken are widespread platforms where you can buy crypto using traditional money. Here’s a breakdown of the different payment methods each exchange generally accepts:

Coinbase

  1. Credit/Debit Cards: Instantaneous but comes with higher fees.
  2. Bank Transfer: Lower fees but takes a few days to process.
  3. PayPal: Primarily used for withdrawals and selling, not for purchasing cryptocurrencies.

Binance

  1. Credit/Debit Cards: Offers immediate purchasing.
  2. Bank Transfer: More cost-effective but slower.
  3. Cryptocurrency Transfer: You can transfer cryptocurrency from another wallet to your Binance account.

Kraken

  1. Credit/Debit Cards: Quick but often have higher fees.
  2. Bank Transfer: Takes time but has lower fees.
  3. Cryptocurrency Transfer: Similar to Binance, you can fund your account by transferring cryptocurrency from another wallet.

For those specifically interested in how to buy Bitcoin with PayPal, some platforms like CEX.IO and LocalBitcoins offer this payment method. Be aware that using PayPal usually involves higher fees and additional restrictions.

Develop a Strategy

Dollar-cost averaging (DCA)

This is a strategy used to mitigate volatility. With DCA, you invest a fixed amount of money at regular intervals, regardless of the asset’s price. 

Buy and Hold (HODL)

It involves buying and holding coins for several years, ignoring market volatility. If you’re a crypto enthusiast who believes in industry growth, this is your strategy. 

Diversification

Investing in a range of assets can help spread risk. Diversification in the crypto world can mean holding different types of cryptocurrencies or even different types of assets altogether, like stocks or bonds.