Presented by Coinseed
Investing in cryptocurrencies has been hugely rewarding and risky at the same time. A lot has depended on how and when you started. Just a year ago, one bitcoin was worth $1,000. Currently, it’s worth more than $7,000 after falling from its all-time high of $19,000 in December, 2017. You could have made tons of money if you had invested in bitcoin earlier but, on the the other hand, you would’ve lost quite a bit if you had started investing just in the last few months.
So while cryptocurrencies and blockchain technologies are truly promising, they’re still in the experimental stage. Bitcoin has been on the scene for only nine years, and Ethereum is just a toddler at two years old. Moreover there are many problems and hurdles tod overcome. Scalability, energy consumption, criminal activities, price manipulations, tax, and legislations are just some of them. In other words, it’s just in its infancy which can be compared to the early stages of the internet. For sure, there is risk and reward.
So what is the best strategy to invest in cryptocurrencies?
Since the market is very new and volatile, perhaps the best way to invest in it is to minimize your risk by diversifying your portfolio. No question, the well-worn maxim “buy low and sell high” is everyone’s ideal. Unfortunately, most people end up doing just the opposite. So let’s change the question to “What is the safest way to invest in cryptocurrencies?”
For example, the stock market has seen many bubbles, market crashes, and economic recoveries. The wisdom and data generated in the field over time cannot be underestimated. From Tulip mania of the 17th century to the financial crisis of 2008, which actually gave birth to Bitcoin, all have given us lessons to learn from.
However, from all of them, one strategy looks most relevant in this situation: risk management and diversification. It’s the practice of spreading your investments around so that your exposure to any one type of asset is limited. This is designed to help reduce the volatility of your portfolio over time and reach long-term financial goals while minimizing risk. Of course, no strategy ensures profit and guarantees no loss but it is probably the safest strategy in our case because:
- Blockchain technologies are still in a very early stage
- No one knows which cryptocurrency will become dominant in a few years
- Mass-adoption hasn’t started yet
- The market is very volatile and can be easily manipulated
- Regulations and legal statuses of cryptocurrencies are uncertain
- Most governments are hostile to cryptocurrencies
Considering these factors, a safer approach is to make multiple small investments in diverse cryptocurrency portfolios over time. It will reduce your risk and you’ll feel less psychological pressure to sell low and buy high. Also it will be much easier to see the market trends since you are investing over time.
For example, if you had invested $1 daily in a cryptocurrency portfolio of Bitcoin-50% and Ethereum-50% for the entire year (Apr 2, 2017 – Apr 2, 2018) even during the all-time highs, you would have still made $320 (+88%) today. You could have made much more than this if you had noticed the bearish trend and stopped investing in February.
It’s the main principle behind Coinseed, a micro-investment and portfolio management app. You can create a portfolio from dozens of cryptocurrencies and add investments as small as $5 into your portfolio. You can even invest just your spare change by linking your credit cards to the app. Coinseed also ranks user-generated cryptocurrency portfolios by their returns and you can easily copy them to your portfolio or convert your cryptocurrencies as well.
Del Davaasambuu is CEO of Coinseed.
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