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3 Common Trading Strategies For Cryptocurrency Investors

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Trading strategies for cryptocurrency investors
Image Credits: The Balance

Cryptocurrency has been one of the most popular sources of investment in the past decade. This feat is largely as a result of its independence from government and regulatory clutches. Similarly, Bitcoin’s recent price surge, also increased investors’ thirst for cryptocurrencies. In late 2017, a Bitcoin reached as high as over $19,000, thereby, recording a rise of about 1,270% compared to its price at the beginning of the year.

Just as it is with basic laws of demand and supply, where the demand for cryptocurrencies exceed the rate at which they can be produced, the prices of such cryptocurrencies would increase; and vice versa. This gives potential investors the opportunity to make substantial profits in the cryptocurrency market, depending on their risk tolerance and ability to seize an opportunity for investment.

Before evaluating the investment options in cryptocurrency, it is pertinent to keep a number of factors in mind:

  1. Perform an in-depth research on the cryptocurrency you decide to invest in.
  2. Try to understand the risks and dangers of your chosen investment option.
  3. Study the market trends and follow experts’ opinions before investing.

There are different strategies an investor may apply whilst investing in cryptocurrency. These strategies may range from day-to-day currency trading to a long-term, hands-off approach to cryptocurrency— that is, buying coins and holding on to them for months or years, in the hopes of gaining returns. These strategies are basically classified into three:

  1. Day Trading.
  2. Swing Trading
  3. Long Term Holding

Day Trading

Day trading is short-term trading, and it could connote holding an asset for just a few seconds or even a couple of hours. It often involves trying to take advantage of the cryptocurrency price volatility which typically occurs everyday. The main idea is selling your asset as quickly as possible, whenever there is a chance to make a quick profit.

This strategy holds potentials for huge returns (often by accumulating small profits over time). However, it involves a lot of work, the most prominent being the need to constantly watch the markets. This strategy also carries its own risks. A bad prediction on a cryptocurrency’s price, could trigger a huge loss on a significant investment.

To effectively conduct day trading, investors need to be able to keep track of the relative values of different cryptocurrencies, and how each of these values may change over time.  One useful resource for this is coinmarketcap.com, which provides a price history for various cryptocurrencies.

Pros

  • Hold potentials for huge profits.
  • Could effectively function as a viable income stream.
  • More exciting than a long-term holding.

Cons

  • Carries higher risks than a long-term holding.
  • You could end up holding a useless coin when it dumps.
  • Abundance of inexperienced traders participating in the markets.
  • Exchanges being staffed by largely ignorant or unreliable personnel.

Swing Trading

Swing trading is an extended form of day trading. It involves the practice of buying and selling (often in stages), after a certain degree of movement in the charts, over a period of several hours, days, or even weeks.

The main idea here is to exit the trade with profits, before the market makes a reverse move and wipes out your gains. This strategy is ideal for people who do not have hours to spend on day trading. These people often fall into the category of persons with full-time jobs.

Swing trading often requires a basic understanding of technical and fundamental analysis. This can help in setting up additional options such as a stop-loss, a service that automatically helps stop your losses before they become astronomical.

Pros

  • Easy to learn and execute.
  • Less stressful than day trading.
  • Unlimited options in trading multiple coins.
  • Ability to minimize risks due to lower number of trades within a fixed time frame.
  • Similar to a stock market, hence, knowledge about stock market operations is an added advantage.

Cons

  • Markets can make dramatic moves overnight.
  • When trading stocks, swing trading rarely provides the same amount of leverage as day trading.
  • Swing trading involves holding trades overnight. With this, margin requirements tend to be higher.

Long-term Hodl

Long-term hodl is another option for cryptocurrency investment. It involves believing in the eventual appreciation of a cryptocurrency, over a particular period— usually a year or more.

Generally, most cryptocurrencies start with low values until they either prove to be legitimate, or function to offer value to potential holders or investors. This limits their adoption rates and user base, especially during the early stages. However, where widespread adoption persists, successful cryptocurrencies can overtime, increase by several hundred times in value. This presents an opportunity for long-term investors willing to take some risk with their investments.

Pros

  • Gives room for cost averaging.
  • More hands-off than short-term trading.

Cons

  • You may miss out on large gains.
  • Not as exciting as day trading.
  • More difficult to make daily profits.

There are also several measures that people often apply whenever they trade. These measures may include speculation or chart analysis. Speculation occurs when a trader believes that a price would either increase or reduce as a result of a certain event, whilst chart analysis connotes a situation where traders study the price movement of a particular cryptocurrency and try to guess what way it would go, based on historical price movements.

Just as it is with every other form of investment, investing in cryptocurrency carries risks; and there is really no accurate way to guarantee that your investment would be profitable.

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Bitcoin

The Great Mining Migration from China to the U.S. Explained

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Bitcoin mining

Coming off the heels of China’s now infamous crypto crackdown, the mining rate in the U.S. has now surpassed that of China for the very first time. With a hashrate – a term used to describe collective computing power of miners around 35.4% in July, the hashrate in the U.S. is up 428% compared to September 2020.

In a move dubbed the “great mining migration“, miners in China had been moving towards more crypto friendly countries since May, when the Chinese government called for a crackdown on bitcoin mining and trading. Some of the locations thought favorable enough to entice mining operations include Central Asia, Eastern Europe, the U.S. etc.

However, it is important to bear in mind that mining operations are extremely energy taxing. For said reason, many of the bitcoin miners who had migrated to the U.S. set out for the U.S. state of Texas, one with one of the lowest energy prices in the country. Another favorable advantage for miners moving to Texas is the crypto-friendly political atmosphere regarding cryptocurrencies.

A criticism often levelled at bitcoin mining is that it is bad for the environment and certainly so seeing the enormous amounts of energy bitcoin mining requires, most of which is supplied from fossil fuels. The mining migration has brought about a trend where miners are actively seeking out renewables and or nuclear power, especially in the U.S. Miners are now clustering around states such as Washington, New York and unsurprisingly Texas.


The U.S. is not the only country to have benefitted from the aftermath of Beijing’s anti-crypto policies. Kazakhstan, the central Asian nation has also seen its share of the global hashrate grow with current levels around 18.1%, just behind the U.S. However, many believe that the Central Asian nation is just a junction on the larger trend of miners moving westward. Also, considering that most of Kazakhstan’s energy is derived from coal and a new law to further tax crypto miners in 2022, It stands to reason that many mining operations will eventually migrate from Kazakhstan.

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Bitcoin

Bitcoin.org gets hacked, scammers run BTC giveaway scam

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Earlier today, Bitcoin.org, the oldest cryptocurrency website registered by the founder of Bitcoin, Satoshi Nakamoto, recently got hacked. Scammers ran a BTC giveaway scam with a promise to return double the amount users send to the named address. In the end, the scammers were reported to have collected $17,764 before the website was taken down. The website was inaccessible for a few hours after the incident, but normal service has been resumed.

To bring users’ attention to the hack, a pseudo-anonymous Twitter account with the name Cobra took to Twitter to reveal the news and claimed that the website may be offline for some days. He also clarified through his tweets that Bitcoin.org has never been hacked and that the breach must have been due to a lapse on the part of Cloudflare- the web provider that the website is hosted on.

“Bitcoin.org hasn’t been hacked, ever. We move to Cloudflare, and two months later we get hacked. Can you explain where you were routing my traffic too? Because my actual server didn’t get any traffic during the hack” he tweeted.

The scam on the website was perpetrated through a giveaway. Visitors on the website were greeted with a popup, asking them to send crypto to a Bitcoin wallet via a QR code and receive double the amount in return. The fake message showed that the Bitcoin Foundation was giving back to the community and that the giveaway will be limited to the first 10,000 people. This was made to draw more people into the scam.   According to an analysis on the scam address done by Reddit Sleuth, it was presumed that a chunk of the 0.4BTC came from the scammers themselves to add an element of credibility to the claim. At the time of writing this report, Bitcoin.org is once again, back to life.

How popular is the Bitcoin giveaway scam?

Bitcoin giveaway scam is quite popular among hackers as it allows them to make fast money without tampering with anyone’s wallet. In 2020, Twitter handles of top crypto celebrities, politicians and influencers were hacked to run Bitcoin giveaways. While the scammers were apprehended, the value of Bitcoin was not affected.

Today’s scam on Bitcoin.org did not affect the price of the coin either. Despite the Evergrande debt crisis and the fluctuations bedevilling the crypto market within the week, Bitcoin increased by 2.05% within the last 24 hours, thereby moving from $42,789 to $44,378.

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Crypto Assets

Crypto prices drop as global market fear increases

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Top cryptocurrency prices have fallen amidst a drop in stocks and fears over China’s Evergrande debt crisis. In the last 24hour, Bitcoin dropped from $47,772 to $42,630 shedding about 8.58%. this is the lowest in price since another bull run began on Sept 5 after the April crash.

El- Salvador’s President, Nayib Bukele sees the fall as an opportunity to invest more. Recall that the country adopted Bitcoin as a legal tender on September 7. Despite the adoption, the price of Bitcoin has fallen by almost 14% since then.

Other coins have experienced dramatic crashes within the last 24hours. Solana, a coin that has experienced 355% growth within the last 3 months fell from $162 to $130 shedding about 11.39% within the last 24hours. Solana’s fall may be categorized by the 17-hour outage which the founder, Anatoly Yakovenko said was caused by bots “flooding the networks”

Ethereum fell by 9.37% while Dogecoin and Axie Infinity fell by 11.22% and 14.14% respectively within the last 24hrs hours. While crypto experiences dark Monday, El-Salvador keeps investing more money in Bitcoin.

A look at the global market

The global market is experiencing fear due to the Evergrande debt crisis. A report published by the University of Michigan shows that consumer’s sentiment is beginning to decline. This trend alone may impact the crypto market as well.

On the other hand, the global market downturn must have been spurred by the Evergrande debt crisis. The company grew to be one of China’s biggest companies by borrowing more than $300bn. Last year, Beijing made rules to control the debt owed by big real estate developers. This led Evergrande to offer its properties at major discounts to raise more money to keep the business afloat. Right now, the company is struggling to meet the interest on payment of debts.

Why would it matter if Evergrande fails?

The collapse of the multi-million dollars company would affect the global market; including the crypto market. Many people bought properties from Evergrande and they expect to make gains. If Evergrande falls, crypto investors will be forced to withdraw more money to keep their business running without the means to invest more. When one business fails, the other gets affected indirectly. This also applies to other firms that do businesses with Evergrande.

The potential impact on China’s financial system is another effect of Evergrande’s fall. In his statement to BBC, Mattie Berkink, the Economist Intelligence Unit (EIU), said that “the financial fallout would be far-reaching. Evergrande reportedly owes money to around 171 domestic banks 121 other financial firms” if the company fails, other lenders or businesses may be forced to lend less. Thereby leading to a credit crunch- a situation where companies struggle to borrow money.

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