The cryptocurrency world’s various assets, whether stablecoins, non-fungible tokens, or any other variety of this modern phenomenon, are crypto investments — they are purchased because of their supposed value.
As an asset’s value increases and decreases in the eyes of crypto investors and the general public, we are left to gauge whether this is the time to cash in the chips.
This means that cryptocurrencies like Ethereum (ETH), Bitcoin (BTC), and altcoins, like any other assets, operate on certain fundamental investment principles. It is best to buy low and sell high to increase your profits and ensure that your cryptocurrency investments have appreciated throughout the time that you have held onto them.
Like any share of stock in Microsoft or Dell or some amount of commodity you own, digital currencies will fluctuate in value, up or down, and you need to grasp the right time to take advantage or cut your losses and save your bank account.
Volatility in the Crypto Market
This matter of fluctuation in the market brings us to the question of volatility in the crypto market and how it affects your trading strategies. Volatility is merely the rate of change in a specific asset’s price over a set time.
When we talk about the volatility of a certain cryptocurrency on a crypto exchange, we mean how much the particular coin has changed in value over a certain time.
When we say that a coin is “highly volatile” or “high-risk,” we mean that the rate at which the coin goes from low value to high value and from low value to high value is relatively quick.
On the other hand, when we say that a coin is “not very volatile,” we mean that the cryptocurrency does not change in value very quickly from one moment to the other.
This volatility is significant when considering your investing strategy, as you may imagine.
If a coin is highly volatile, though you may have bought a new coin just the other day, it may drop to basically nothing in value today, or conversely, it may have increased a hundredfold. However, you may have bought it for only a couple of dollars the day before.
The listings of these volatile coins change daily with the influx of different currencies into the market.
What Coins Should I Buy? How much?
This is why it’s crucial to determine what coin to buy and how much before you even start to question how you might start thinking about profit-taking.
How your coin operates in real life will determine how you will be able to work with the cryptocurrency to lock in returns on your crypto holdings.
And to answer this question, we also need to ask ourselves: What is my goal in crypto trading? What kind of crypto gains trying to make from this investment?
Before you commit your hard-earned USD to a digital asset, you need to determine an investment goal.
If your goal in investing is to experiment in the market to take profits in the short term, this will require you to buy highly volatile coins to quickly get into the market and get out when the currency rises in value.
Examples
A typical example of coins with a highly volatile market value may be a cryptocurrency. One is Tamadoge, a play-to-earn coin that runs on the same blockchain technology as Bitcoin and Ethereum.
On the other hand, if your goal is to invest for a long time, you’ll want to lessen the risk of completely losing your long-term investment by buying up far less volatile cryptocurrencies that might have lower liquidity.
A suitable type of this long-run investment is the stablecoin — it has “stable” in the name itself. These coins tend to be pegged to an existing currency or some other stable commodity so that the coin’s value will not fluctuate due to the smallest of matters.
We also want to ask: How many coins should I buy? Depending on our budget, we may want to be a little more careful with investing in the more highly volatile currencies while being a little more liberal with spending on the more stable cryptocurrencies.
Now then, after we’ve decided what coin we want to purchase, we need to ask ourselves: How do I know when to buy more crypto and sell my assets?
When Do I Buy and Sell Crypto?
The straightforward answer may be that you should buy crypto when the price is the lowest. That much seems like common sense.
However, the “when” is determined by your goals and the coins you have set your eyes on. If you are interested in making a quick profit with highly volatile crypto, it might not be necessary to wait for the price to hit rock bottom before you decide to invest in a crypto asset.
A far better option may be for you to buy the crypto even if it is rising and sell it as soon as it grows a little. This incremental approach might result in the quick profit that you want.
On the other hand, if you want to invest for the long term to allow your investment to grow slowly over a long time, it might be much preferable to invest in your stable cryptocurrency when there is a dip in the market. Because your low-volatility cryptocurrency will likely mirror the general market, you want to be more conservative in buying your crypto.
NFTs
Things become even more complicated when we think about non-fungible tokens (NFTs). Because NFTs operate more like commodities, there are more things to think about when considering what might be the best course of action.
It’s not enough to just analyze the market as a whole. You need to know what people want in the area of your NFT.
From one moment to the next, whether your NFT is an in-game NFT or an independent artwork, people’s opinions of a piece of artwork might change in a second.
And if you end up owning a piece of artwork with an NFT with profit in mind, you need to make sure that you are holding onto that art piece for just the right amount of time for it to appreciate. You can start selling your crypto when the time is right, and the market is set.
Strategies and Other Investments in Trading Crypto
Beyond the basics of profit-making: buying low and selling high — either day trading for quick profits or holding for the long run — there are many other ways to profit with cryptocurrency.
Here, we will discuss just three of these strategies for making a profit in cryptocurrency.
The first is a slightly more stable method of trading. It is to trade crypto indices. Like stock market indices, a crypto index is based on an underlying asset or a set of assets. When it comes to cryptocurrency, investing in an index might allow for an easy entry into trading coins.
With indexes, there’s no need to go through the entire process of purchasing and selling coins without guidance. An example of this is the Bitcoin Index.
The second strategy in trading cryptocurrency is arbitrage. An arbitrage has to do with buying an asset at a lower price and selling that asset again for a higher price by taking advantage of a price discrepancy between those two sales.
There are a couple of ways of doing this. One way is to buy your coins at one exchange and sell them at another exchange offering a higher price for the sale of those same coins.
You can make a small profit by taking advantage of the slight price difference between two different cryptocurrency exchanges. If you invest more money into this process, you’ll be able to generate better returns with a relatively small risk.
Another way of committing arbitrage is by buying and trading between two or more cryptocurrencies to take advantage of the differences in prices between those currencies’ trading rates.
If crypto A and B are equal in trading value to one another but A is cheaper to buy with dollars, you could simply purchase crypto A and trade it for crypto B. Crypto B then could be cashed in for a higher return.
The third method of trading cryptocurrency is yet another indirect method of trading coins. We can make a profit off of cryptocurrency by trading futures. Without going too far into what futures are and how futures work, we can think of this instrument as a way of betting on the future movement of cryptocurrency.
You can buy contracts that will guarantee a specific price for buying or selling a certain number of coins, and if you were correct in your prediction, you could make a great deal of profit.
Exit Points
Crypt investments, like others, must be evaluated according to historical performance and how they’d fit into your portfolio. Of course, various cryptocurrencies make this technical analysis slightly tricky.
Some crypto is similar to stocks, and others are more like commodities. Some are art pieces that can shift in value very quickly with many determinants behind them — some of those factors being things as volatile as human emotions.
However, for this reason, cryptocurrency can be an excellent avenue for profit. Because you can make money in various ways at the click of a button, diversifying your portfolio and employing different strategies becomes easier.
As long as the investor is well-informed and well-trained in understanding how these coins work, trading cryptocurrency can be a great way to become involved in the new world of Web 3.0.
Even if it’s just to dip your toes into the Web 3.0 ocean, take a look into the vast world of cryptocurrency.
Sources:
What is volatility? | Coinbase
12 Most Volatile Cryptos to Trade & Invest in 2022 | Cryptonews
Figure Out Your Investment Goals | Investopedia
Shiba Inu and Dogecoin price flops while Tamadoge pumps over 200% in 24hs | HeraldScotland
Bitcoin spot vs. futures ETFs: Key differences explained | Cointelegraph
Crypto Arbitrage Trading: How to Make Low-Risk Gains | Coindesk
Cryptocurrency Futures Defined and How They Work on Exchanges | Investopedia
