You may have noticed Bitcoin’s extraordinary take-off last year, during which a majority of cryptocurrencies experienced huge gains.
What does 2019 have in store for Bitcoin and all of the other cryptocurrencies? You’re soon to learn why many things may not happen as you expect.
Let’s dive into the year of the AltCoins and see how a lot of coins other than Bitcoin will take the spotlight.
Last Year Brought Attention to AltCoins
An altcoin is any coin that’s not Bitcoin. It’s quite simple. They have this name because it was Bitcoin that took all of the media’s attention for the longest time.
Now, Bitcoin is being challenged by many other smaller coins who boast impressive scale-ability enhancements over the brand name coin.
In the year 2017, if you were to invest a mere $10 in each of the top 100 cryptocurrencies, you would have experienced an incredible 50x return on investment!
That’s right – your $1000 investment would have turned into over $50,000 by the end of 2018. This can be done all by diversifying your investments.
This Party Cannot Go On Forever
If everyone expects to get rich from a coin, the price will drive up. This is called a “pump”.
Once the coin reaches a certain value – anywhere from 3 to 20 times over its original cost – then people will sell off in troves. This is called a “dump”.
These pumps and dumps are heavily frowned upon in the world of Wall Street – in fact they are quite illegal – yet they are so prevalent in the unregulated world of cryptocurrency.
Sooner or later, people will become wary of these. Are investors putting their money into the hopes and dreams of a coin’s technological future, or are they putting their money into the hopes of getting rich?
Many compare cryptocurrency to the Dot Com Bubble, and they very well may be right. There might come a time – even if it’s not this year – where there is significantly lessened interest in cryptocurrency as a whole.
When too many people pump and dump these coins over and over, they lose their power. For example, if a coin goes up and down so much, then fewer investors are likely to hop on board once it starts to go up again.
They might think, “This coin goes up, but it always comes down. I’m not going to risk it by investing.” This is actually harmful to a coin when it skyrockets and crashes, and this is why you should be wary in 2019 of where you put your money.
A Healthy, Regulated Economy for Cryptocurrency Investment
2019 might bring more regulation to the table, ensuring the protection and well-being of its investors.
For example, a major online exchange recently announced that it would not allow new members unless they deposit $10,000 as a deposit.
Why is this kind of regulation healthy for the cryptocurrency economy? Because anyone with the funds to meet this entry requirement will not be so likely to willingly take part in these repeated pumps and subsequent dumps.
While this kind of regulation might seem too restrictive, changes like these are necessary for the healthy future of a coin.
LLooking Forward to the Future – Technology for Optimal Cryptocurrency Investment
Sure, it is very exciting to see those sharp price increases and imagine getting in on the ground level of next month’s coin in the spotlight.
Eventually, however, the world must pay attention to the actual technology in any given coin.
Investors will start asking more and more, “Sure this coin has a high market cap, but what does it promise to the future?”
What is the Coin’s Value Proposition?
The aspect that makes a coin unique apart from the others is known as its value proposition. A coin must have a value proposition that either enhances or adds on to Bitcoin’s limitations.
For example, Bitcoin only allows for 7 transactions per second, whereas some of the newer coins allow for thousands or more transactions per second. This results in not only faster transfer speeds but cheaper fees as well.
What are the Coin’s Niche Aspects?
Other coins might embrace niche aspects such as entertainment, bill paying, security, and other aspects of decentralization.
For example, consider DentaCoin that is the dental world’s first cryptocurrency enhancement. This coin does not vow to be the next Bitcoin; rather, it simply wants to be widely used in the world of dentistry.
The coin Ripple wants to be used by banks opposed to competing against them.
The coin SunContract eliminates the middleman between providing and purchasing solar energy, which increases what homeowners earn from their solar panels.
These kind of niche applications allow various industries to take advantage of the powers of cryptocurrency in very specific areas.
In the year 2019, we’ll see these aspects of the cryptocurrency world that are more flourished.
Imagine all of the industries in the world and imagine if each industry had a cryptocurrency backing it.
Bitcoin is a very generic coin used in anonymous wealth transfer. We’ll see fewer of these generic coins come to exist; we’ll start to see very creative and ingenious applications of specific technology in very specific industries.
Foundation of Good Cryptocurrency Investment Strategy
First and foremost, I’ve only invested an amount that I can live without – so no matter what happens, I won’t need to sell my crypto to sustain myself – and so should you.
Having a safety net to fall back on will also prevent you from letting your emotions get the best of you, something that can become financially lethal.
Invest After Thorough Research
Another important premise is that you only invest in a project you know everything about.
What problem is it solving? What industry is it targeting? Who is behind the project?
Without the certainty of this knowledge, you’ll likely lose a lot of money.
Invest for the Long-Term
My cryptocurrency investment strategy focuses on the big market moves and big moves of individual coins.
It’s a long-term strategy with options for mid-term action. It has been built with the strong conviction that cryptocurrencies and the blockchain are powerfully influential innovations that will become household names and be used by the masses over the coming years.
With this cryptocurrency investment strategy, I’ve been trying to build a systematic approach to buying low and selling high that will continuously increase the value of my portfolio.
It rides the big waves of the crypto market in a relaxed way. Don’t try to predict anything, but just go with the flow.
Also, don’t sweat the small movements. The market is incredibly volatile, and the sooner you accept this and learn to ignore it, the better.
A key component in cryptocurrency investment strategy is not to worry about trying to time the market perfectly. Even the most seasoned investors aren’t able to consistently buy at the absolute bottom and sell at the peak.
Worrying about this causes stress and leads to mistakes caused by emotional reactions, which should be avoided at all cost. We are merely smart individuals, and by accepting this, we can become very successful individuals.
Know Thyself Before Investing in Cryptocurrency
The biggest risk when investing and trading is you: your emotions, biases, and beliefs.
This strategy tries to remove the “you” as much as possible from the equation.
This article accurately depicts the biases and shortcomings we all have. The markets are not rational; almost everyone lets their emotions (such as FOMO and panic-selling) get the best of them.
In the end, big money will always beat you if you don’t come to terms with these cold hard truths.
Common Cryptocurrency Investing Mistakes
Common mistakes in cryptocurrency investment strategy made by investors and traders are:
- Investing in something that they don’t know and understand
- Going too big into one asset
- Investing a large sum in penny coins
- Using leverage and shorting
Moreover, people tend to become emotionally attached to specific coins and beliefs. You shouldn’t “believe” in a single coin or in a market movement.
I’ve read so many times that people are convinced something will go up because it has to, right? Perhaps the market is acting weird, or that crypto or the whole space is undervalued. The market is just wrong.
Truth be told, the market does what it does without any sympathy for how you feel about something.
Research, Research, Research!
Long-term investing is all about the fundamentals. Do Your Own Research (DYOR) can’t be stressed enough.
Whether you’re just getting started or you’re already in the game, research remains the most important aspect of cryptocurrency investing.
Ask yourself the following questions before investing in a cryptocurrency:
- Who is behind the project?
- Is the whitepaper clear and concise?
- How does the project work technically?
- Is the problem a real problem?
- Is it actually solving a problem?
- What industry does the project target?
- Are there any big partnerships?
If you don’t understand the technology, industry, or purpose of a coin or token, stay out of it. Some random salesman on a Telegram channel shilling the hell out of a coin should never be able to convince you to buy it.
All such social media mentions can only be used as a beginning point of research, never as a reason to buy.
Coins can absolutely go to zero. Stay away from such pitfalls by thoroughly researching everything you buy into.
A Balanced Portfolio Including Cryptocurrency
Diversification is of the utmost importance when investing in the crypto space. A well-balanced portfolio mitigates your risk, but it also limits your total gains.
When you want to play it all-or-nothing, going with only one small cryptocurrency can make you rich, but the chances are bigger that you’ll have to sell at a loss or even lose it all.
This is especially true given the number of new cryptocurrencies that have entered the market. There is no industry that is targeted by only one cryptocurrency, and even if you manage to find such an industry, new players will likely surface.
IOTA was the crypto that didn’t use blockchain; now there’s Nano, Circle, and Hashgraph.
Ripple was the crypto for banks; now there’s Stellar slowly eating away at Ripple’s first mover advantage.
There are two ways to balance your portfolio:
- You can create a balance based on several individual cryptocurrencies, or
- you can balance your portfolio based on the types of cryptocurrencies.
I’m actually doing both. I first created a balance based on the types of cryptocurrencies. Afterwards, I created another balance of the cryptocurrencies within each of the types of cryptocurrencies.
The types of cryptocurrencies are:
- Transactional coins
- Platform coins
- Utility tokens
- Security tokens
- Asset-backed tokens (stable coins)
ICO’s (Initial Coin Offering) can fall in any of the above mentioned categories.
These coins are used for the transaction of value. Bitcoin is the most prevalent example of this, but there are many other coins providing the same service with different features. Examples of these are Litecoin, Dash, Monero, Zcash, and many more.
Honestly, almost all of my portfolio in this crypto category is in Bitcoin. I don’t really believe in a new financial system of numerous digital currencies with cross-exchange rates simply because Bitcoin is an open-source protocol on which numerous layered solutions can be built.
Even though other transaction coins will definitely grow in value in the next few years, I think that Bitcoin will remain the dominant currency in this segment.
While others may be faster, less centralized, or more private, Bitcoin’s incredible first mover advantage and allowance for upgrades makes me continue to place my faith in the reigning monarch of cryptocurrencies.
These are cryptocurrencies bound to blockchains that allow for the creation of applications on them, such as Ethereum, NEO, Cardano, Lisk, VeChainThor, and many more.
The underlying platforms of these coins create an actual need – and thus a demand – for the coins. They are needed to make use of the applications and buy into ICO’s.
In my opinion, these coins are currently the safest coins with the largest growth potential. This is because the blockchains they are built on have the capacity to become the foundation of the decentralized world.
We have no idea which of these platforms will actually become the “global supercomputer,” so I’ve been diversifying my investments over multiple platform coins.
Moreover, the regulatory risk is less with these coins, as they actually give access to practical services instead of trying to disrupt the regulatory monopoly on money.
These are tokens built on one of the above mentioned platforms. They give access to a specific blockchain application, and are designed for a specific task.
Utility tokens are not really my cup of tea yet, as they’re extremely risky due to two things:
- It’s still too early for mass adoption of these utilities because the technology is not ready yet (Ethereum’s scalability issues, for example),
- and because we don’t know what platforms will actually become the blockchain backbone of the digital world.
If the underlying blockchain won’t be the one to be used, the application is definitely doomed. If, for example, Ethereum fails to scale, its applications will fail to deliver.
I do believe that the utility tokens entering the mainstream will do so by creating a service that is much better than anything we have right now.
These will be the so-called “killer applications” with returns that will be beyond imagination. High risk, high reward.
These tokens don’t have an inherent use case but are issued by a company to raise funds.
They don’t give access to a service, but allow users to participate in the growth of the value of the company through, for example, buybacks of the tokens by the issuing company.
This is still a very grey area in terms of regulations, and there have been frantic discussions on what exactly differentiates security tokens from utility tokens.
For me, security tokens are too risky at the moment for my optimal cryptocurrency investment strategy– take, for example, the SEC’s recent witch hunt, during which it subpoenaed 80 cryptocurrency companies.
Asset-Backed Tokens (Stable Coins)
This type of cryptocurrency investment strategy is on the rise. In this model, a cryptocurrency represents the value of an underlying asset such as gold, art, fiat currencies, etc.
It represents a new, more accessible way to invest in assets other than cryptocurrencies, through cryptocurrencies.
Stable coins provide an excellent way to take shelter from a corrective storm.
I’m only interested in projects leveraging blockchain technology to create completely new business models and disrupting existing ones, but these cryptos are very interesting nonetheless.
Cryptocurrency Investment Strategy Conclusion
Lose the thirst for wealth and riches. Instead, pay attention to how and why the future might embrace any given cryptocurrency.
If you are ready to invest heavily into cryptocurrency, read more about why we suggest that the best way to do so is by investing in a Cryptocurrency IRA.
Do not invest based on greed but invest based on innovation. By doing so, 2019 might be that much a greater year for you.
Do you have any questions on what is the best cryptocurrency investment strategy? Ask below!