The author is the CEO and Co-founder of Giottus Cryptocurrency Exchange.
You are a new crypto investor with some capital that you can afford to invest. You are keen to get started but you are not sure when is the best time to invest. Do you wait for a 20% decline in prices? Do you wait for a week to see if the market is moving in a particular direction? What is the standard practice to minimize risk and maximize returns? This guide is for you.
The crypto market is notoriously volatile with as much as 20% variance in prices within a day. While a ‘green’ day, a day with an increase, keeps you elated, a ‘red’ day with a decline may keep you awake whole night. But, it does not have to be this way. Managing risks and volatility is possible and within your reach. All it takes is a bit of patience and some diligence. Strategies vary according to individual goals and risk appetite but the following approach works in most situations.
Data suggests that long term investors are more likely to gain wealth than short-term traders especially in the crypto world. While technical analysis of an asset act as a compass and give short term guidance, they are never the holy grail. More than 90% expert traders (who only invest for shorter timeframes of up to 3 months before switching assets) never recover their losses and take on additional stress compared to even amateur investors (who invest for at least a 2 year timeframe). The crypto market is still evolving and hence not immune to global news that potentially can affect it in the short term.
Building wealth is about patience as much as it is about timing the entry. Bitcoin follows cycles and compounds over time irrespective of short to midterm bear phases (where the asset declines in value or does not grow significantly). ‘Invest and forget’ is definitely a better strategy than worrying about daily patterns. This is valid even if an asset you invest in tanks 20% the next day. Patiently wait for it to recoup all the losses. Bitcoin has always achieved new all-time-high prices regularly with time and hence no investor so far has lost capital unless he sells it before he should.
A proven method of managing entry points is to do Dollar Cost Averaging (DCA). DCA is a straightforward investment strategy that works irrespective of the price of an asset. This is similar to a systemic investment plan (SIP) where investors split the capital into equal shares and buy assets at regular intervals of time. If you are investing say INR 5,000 in a month, you can split it into five portions of INR 1,000 each and invest every Monday morning 10am irrespective of market price. Mathematically, this gives you the best average cost over the month. This, of course, requires discipline and control but it minimizes volatility risk as it would prevent an entry at a single price point. If you want to take additional risk, you can probably allocate 80% of capital to DCA and use the rest 20% on discretion. If the market is in an extended bear phase, consider it as an opportunity to allocate more capital to that month provided you can afford to do so.
One thing you should time in this market is your exit - while entry points provide opportunities to grow the portfolio, exits are when profits get realized. Each investor should be prudent to take out their principal and some profits along the way once a particular price target is achieved in future.
Globally there are about 120 million investors in cryptocurrencies today. Analysts expect this metric to grow 10x over the next five years, and hence, the overall market will certainly grow in the long term. The best day to enter a position in crypto is today irrespective of the price of the asset. Bitcoin, Ethereum and other large market cap coins have an higher probability of contributing to this growth and hence are relatively safer to start with.
Buy, hold and rake in profits years from now!
Disclaimer: This article was authored by Giottus Cryptocurrency Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.