Crypto Investment Strategies
New to Cryptocurrency? Bring yourself up to speed with our super-friendly guide to the virtual world of Crypto-finance.
Cryptocurrency is new and exciting. Everyone’s heard of Bitcoin now, and it’s an exciting investment opportunity for the future. Digital currencies are looking like the future, and even Governments can’t wait to get in on the action.
But hold your horses, and manage your expectations of life-changing profits from a £1 investment, and let’s look at what Cryptocurrency actually is and how you can benefit.
Cryptocurrency is a digital currency. It doesn’t exist except as a number in a database and you can’t put it in your pocket. There are various types of “coin” (we’ll use the word “token” from now on) and some coins, like Bitcoin and Ethereum, are well established with high liquidity.
There are so-called “stablecoins” that shadow the price of a real-world asset such as a currency or resource (for instance, the US Dollar or the price of Gold).
Then, there are thousands of “altcoins”, which is basically a big basket of “not Bitcoin”. It’s probably for experts only. Don’t worry about these for now.
Finally, there are security tokens: digital stocks and shares representing actual ownership of an asset or resource. It’s a very new market, but might be worth exploring.
Cryptocurrency is a young but maturing market. This means there are investment opportunities here that traditional markets just don’t offer.
So, you want to take advantage? The big questions are: How? Where? Why? With who? and we’re here to answer all of them.
Why invest in Cryptocurrency, specifically?
Simple: you get better returns in Crypto than in regular currencies (which are called “Fiat”). While Crypto is a fascinating subject, you’re probably here because you simply want to make your money work harder.
Well, in Crypto it works harder. The question is: how hard do you want to work?
Why do Crypto markets generate bigger yields than regular markets?
Whether it’s company shares, currencies or commodities such as oil, gas or Frozen Concentrated Orange Juice, the whole system is built on financial institutions making large bets on things changing in price.
In traditional financial markets, even though things change rapidly, they don’t generally change by a huge amount at a time. This is partially because the markets are full of automated, high-frequency trading bots written by different companies. These balance each other out in a bit of an arms race. This is called “low volatility”. There’s a lower risk of losing your shirt, but a lower return too.
Crypto markets move faster, and they swing wider.
With Crypto, the result is more profit, but also more risk: wins are bigger, losses are bigger. And, as a developing marketplace, bots are less advanced, and the market is affected more by huge trades. Profits/losses of 20% (or even more) in a day for traders are common across a wide range of assets.
How do you take advantage of all this promise? This is where we get to the strategy part.
Strategy 1: the thrill of the pump, the agony of the dump
Investor type: ACTIVE-AGGRESSIVE, Intervention: intensive trading
Trading directly on an exchange for profit against fellow traders is very risky. You’re aggressively chasing high profits and taking risks with your assets with no safety net.
This is an “active” investment because it requires attention and action from you. High-risk, high-reward.
PASSIVE-AGGRESSIVE – Some investors don’t really enjoy being punished on every trade they do, so they let a bot do it and get stressed by that instead. The bot will buy and sell various Cryptocurrencies at the same time to make small profits that add up. In theory. The problem with that is that bots generally work on trading algorithms developed on the mature regular markets: not on these easily-influenced, volatile ones.
The lowest-fee exchange is newcomer INX, though it doesn’t have a mobile app at time of writing. Other popular exchanges include Gemini and Coinbase.
Do I have to buy Crypto at an exchange?
While exchanges often offer the best prices to buy Crypto for investment generally, there are often other options built into the various wallet or investment apps. At AQRU, we have partnered with MoonPay so you can buy Cryptocurrency directly within a wallet or investment app.
Buying Crypto directly in an app can save money on transmission fees and withdrawal fees, and it goes straight to your portfolio/app/wallet without messing around with addresses.
Strategy 2: Buy, HODL, profit
Investor type: PASSIVE AGGRESSIVE, Intervention: check on the price every so often
Investment strategy 2 involves buying a Cryptocurrency and holding onto it (called “HODLing”), hoping it will go up in value.
Historically, it’s been true so far that if you buy Crypto, at some point it will have made you a profit (usually over a period of years rather than months), though if you buy at a peak and it takes a year to get back there, it doesn’t feel like it.
Two approaches to buying Crypto for this purpose are:
- buying it all at once, and
- buying it in small quantities over time so that the cost changes are averaged out (called “Discount Cost Averaging”).
Some exchanges and wallets offer “recurring buys” of Crypto for people.
In this strategy, its success or failure depends on changes in the underlying value of the asset, but in the intervening time, that money isn’t working for you, so you can combine strategy 2 with strategy 3!
Strategy 3: Crypto HODLing – with interest
Investor type: PASSIVE AGGRESSIVE, Intervention: check on the price every so often
OK, so you’ve bought a nice, established Crypto like Bitcoin or Ethereum. Now you’re waiting to make enough profit to sell: but a new development helps you make your tokens work harder: interest-bearing Crypto savings accounts.
Accounts like this that you’d trust are pretty new, and are possible because of the advent of better regulation, advanced “Know Your Customer” money laundering protection and a more stable Crypto infrastructure.
So, how much can you get? It varies from provider to provider, but it’s vastly more than banks offer.
With today’s high inflation and low-interest rates, savers in the traditional banking system are getting hammered, and the currency decreases in value each year.
But in Crypto, interest rates are much higher, with providers such as AQRU offering interest rates far higher than banks if you park your Crypto with us (or buy it in-app).
What makes this strategy aggressive? Well, you’re still relying on the underlying asset going up in price. Because of the volatility of Cryptocurrency, this is always going to be a risk (or indeed, a reward).
Strategy 4: Stablecoin Crypto HODLing with interest
Investor type: PASSIVE CONSERVATIVE, Intervention: none needed
Let me introduce you to Stablecoins.
They’re Cryptocurrencies whose technology allows them to follow and reflect the value of another asset. For instance, USDC (as you’d expect) mirrors the price of the US Dollar.
Stablecoins came about because Cryptocurrency and foreign exchange markets simply don’t talk to each other, yet exchanges needed something to represent the fiat currencies so trades could be made.
What makes them worth anything at all is that the company behind the coins would be holding assets theoretically equivalent to the value of the issued coins. So in theory, if every holder cashed in, there would be enough money to pay them.
In practice, that never happens because stablecoins are just swapped for other things.
Of course, as you’d expect from the name, the value of a stablecoin remains stable, at least against the underlying asset’s value. If you care about a coin’s value against the US Dollar, then buying a stablecoin means it won’t go up or down in value.
This means that, unlike a Crypto, you’d never buy a stablecoin expecting to make a profit. There are also stablecoins for the Euro, the British Pound and the Yen. Countries around the world are also looking into launching CDBCs (basically: stablecoins issued by a Central Bank, and so a LOT more official than the ones so far). China’s Digital Yuan is the biggest launch so far, but expect it to catch on!
However, it can make you money. Remember the Crypto savings accounts we were mentioning? They give interest on stablecoins too. For instance, at AQRU, we give an unconditional 7% on the Maple USDC token.
How can a real dollar/pound generate insulting returns in the regular markets while a digital one can offer 20-30 times more?
The answer is we are not only looking after tokens from our customers and paying interest: we’re lending it out in various ways at a profit. Companies operating in the Crypto space want stablecoins for the same reason you might want them: they’re linked to a real currency and they want to avoid ups and downs in the real-world value of their investment.
But because there are far fewer reputable options to borrow substantial amounts of Crypto dollars, the interest rate charged to borrowers can be more than they might pay banks in the regular financial system.
Strategy 5: Security Tokens
Investor profile: MODERATE, Intervention: measured
This is a “one-to-watch”, and under most radars, because it’s an even newer market than Cryptocurrency.
It’s basically “digital stocks and shares”, with a company or project issuing tokens in exchange for investment. Different projects offer different rewards (including dividends, but other things as well, like discounts), and there is an underlying asset that the tokens represent a share in: its proper ownership. You would expect to be rewarded for owning the tokens, and you would hope they would also go up in value.
The advantages of a digital security exchange over a stock market are that:
- retail investors can directly buy
- you can buy fractions of a token (you can’t buy less than one share of a company in the stock market: if Microsoft costs $1000 a share and you’ve only got $500, then you’re out of luck
- the market is open 24/7
The leading Security token exchange is INX, and if you want to get in on the ground floor with IPOs (“Initial Public Offering”, where you get the tokens before they go on the market), then Tokensoft is the leader.
Like stocks and shares, security tokens would generally be held for a length of time as a medium-term investment.
The Security token market is currently slower and less volatile than Cryptocurrency, and it doesn’t have too many automated traders. This means prices move much slower. The smaller size of the market means that currently, it’s also more difficult to sell the tokens.
Which strategy is right for me?
Only you would know that! And of course, there will be a disclaimer that none of what we’ve typed can be construed as investment advice.
If you have decided to invest in Cryptocurrency, the main decision is this: how much risk do you want to take on the value of your asset? If you’re happy with risk, invest in Crypto. If you’re happy with 7% APY, invest in stablecoins.
Or, you could diversify and adopt an “all of the above” strategy where you buy some Crypto and some stablecoins and park them for interest with us and you might even diversify further and enter the newer world of security tokens.
It’s entirely up to you, of course. But good luck! If you’re not sure where to get started, sign up today and we’ll give you 10 USDC to try for yourself.