It may seem like a silly question, but a crucial part of trading and investing decision making is having a clear idea of why you are doing it. Making money isn’t a specific enough answer.
To start with there are other things you can do with your money to derive a return, so what you intend to make from trading cryptocurrency needs to justify the comparative risk.
This will start with the options of leaving your money in a Fiat savings account or some basic index tracker fund but the premise of Learn Crypto is that cryptocurrency represents sounder money than fiat. So, once you’ve done research and accept that premise, you should be comparing against non-fiat opportunities.
This can include things like precious metals, collectibles, property and art. Bear in mind that the returns from these options might not seem as sexy as crypto, but that is because the risk involved is far less.
If you are satisfied that crypto represents the best risk-adjusted investment for a portion of your discretionary income, the section on earning cryptocurrency walks through the risk spectrum.
You’ll see that passive interest can generate 5% return for Bitcoin, higher for other coins, which is a good benchmark to start from – though this includes counterparty risk – which is why we include it below in potential strategies.
Making a reasoned assessment of the return you intend to generate also serves the important purpose of quantifying your ambition. As you navigate the crypto world you’ll see a lot references of ‘to the Moon’ or ‘Diamond Hands’ suggesting that hodlers see crypto as something they aren’t considering selling.
That is fine if, for example, you think the fiat system is imminently going to collapse but that is very unlikely. In all likelihood we’re going to need fiat for a while yet, and its relevance is illustrated by the fact that crypto’s value is expressed in fiat terms. So a crucial part of any trading or investing strategy is an exit point.
This is self-evident for short-term trading (as we’ll see in the next article) but for those that invest for the longer term – the Hodlers – it’s worth deciding in advance if and when you take profit (should you make any) off the table.
It is great watching numbers go up during a bull market, you may even feel slightly disconnected from reality, but as soon as the market turns, and markets inevitably go through cycles, you may feel uncomfortable at not realising some profit.
Tip: For longer term investment set a price target
then consider a 15/10 rule, cashing in 10% for every
15% gain.If you cannot envisage yourself selling then think about other ways your investment can provide a return. You might apply the risk spectrum approach in turn to your crypto portfolio, keeping the bulk securely on your hard wallet, a portion earning return through Defi/Cefi and then taking greatest risk with the smallest proportion
To help here are some suggested cryptocurrency trading strategies, starting with the least complex and requiring only small, regular amounts.
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