Crypto 101

Lesson 7 Investment Strategies

Investment Strategies

Choosing an investment strategy

You have three main strategies to consider for getting in on crypto: buy and hold, trading, and mining. Here are the main characteristics and trade-offs:

Investment Strategies

When to buy and sell

In addition to choosing your overall investing philosophy, there are strategies you can consider to help you decide when to hit the “trade” button:

1. Recoup your initial investment

If your crypto gains, consider cashing out the amount of your original investment so that you’re protected against losses.

Example:

  • You invest $1,000 in Ethereum.
  • The price spikes, and your investment goes to $8,000.
  • Consider selling $1,000 to recoup your initial investment (or slightly more, since you’ll owe taxes on your realized gains).

2. Use dollar-cost averaging

The mantra “buy low, sell high” is great, but it can be paralyzing. With dollar-cost averaging, you don’t need to guess what the market is going to do tomorrow. Instead, you invest an even amount at regular intervals.

Example:

  • You want to buy $1,000 of Litecoin this month.
  • Instead of waiting for a day when you think the price is good and then investing the full $1,000, invest $250 each week over four weeks.

3. Use buy and sell orders

Instead of hanging out on your exchange’s website waiting for the price to drop before you buy (or rise before you sell), you can use automation to put your strategy into place.

Example:

  • Suppose Bitcoin is trading around $7,000 and Litecoin is trading around $65.
  • Suppose you want to sell some Bitcoin and buy some Litecoin.
  • You can set up a sell order to automatically sell a certain number of Bitcoin if, say, the price rises to $8,000 (or whatever price you set) within a certain period of time.
  • You can set up a buy order to automatically buy a certain number of Litecoin if, say, the price falls to $50 (or whatever price you choose).
  • If the coins reach those prices within the time period you’ve set, your order or orders will go through.
  • If not, no transaction will occur.

A word on taxes

For all strategies, be prepared for tax season. Keep records on each investment, including the day you bought it, the purchase price, and the quantity. Spreadsheets and apps can help you track your holdings. An accountant who specializes in cryptocurrency taxes may be able to help.