Investing in cryptocurrency can be a daunting task for many, with its volatile price movements and unpredictable nature. However, it doesn't have to be a sleep-depriving experience. By following these three simple strategies, you can invest in crypto with confidence and peace of mind.
One of the biggest fears of investors when it comes to cryptocurrency is its volatility. To turn this fear into a neutral factor, you can use dollar-cost averaging (DCA). This strategy involves buying a fixed dollar amount of cryptocurrency on a regular schedule, regardless of the market price. When prices fall, you buy more units, and when they rise, you buy fewer. This approach can significantly reduce your maximum drawdowns compared to lump-sum buys and takes the emotion out of the decision-making process.
Stick to Established Winners
After automating your investment schedule, the next step is to focus on established cryptocurrencies that have proven themselves in the market. There are many terrible investments in cryptocurrency that will lose all of your money, so it's best to avoid small altcoins or meme coins that are based on social media hype and opaque tokenomics. Instead, focus on cryptocurrencies like Bitcoin, Ethereum, XRP, and Solana, which make up roughly 75% of the entire crypto market cap. These major cryptocurrencies have deeper liquidity, tighter trading spreads, and real institutional research to scrutinize, making them a better choice for long-term investors.
Keep Your Allocation in Check
Even if you have patience and careful investing habits, it's important to set a limit on your crypto allocation. Start with a small percentage of your portfolio, such as 1% in Bitcoin, and grow it via dollar-cost averaging. After a year and at least one gut-check dip, reassess your nerves. If you're still feeling confident, you can increase your allocation to 3% to 5%, spread across the big four. However, don't go over 10% of your portfolio in crypto as its volatility can hijack your portfolio risk.
By following these three strategies, you can invest in cryptocurrency with confidence and peace of mind. Remember, investing is all about balancing risk and reward, and these strategies will help you achieve that balance in the world of crypto.
