Beginners that want to get started and invest in cryptocurrencies will often be looking for strategies to use at first. Even with long-term experience trading crypto, you can still make big mistakes since this is a very volatile market.
I've put this guide together to teach you a bit about the basic strategies that a beginner can use. You'll also learn how to pick which coins to invest in to have the best potential to reach your personal goals.
The first thing you'll need to do before you can buy cryptocurrency is to have an account with an exchange. Crypto exchanges let you deposit money into an account that you can then use to buy and sell coins. You'll then be able to withdraw your money from these accounts to a bank account if you want to cash out.
CoinBase, Binance and River are just a few exchanges you can use to buy crypto, but there are many more. Each exchange can offer different coins, so you may need accounts with multiple exchanges to invest in a wide variety.
Be sure to read the fine print when you use these exchanges though, especially if you plan to hold your cryptocurrency long-term. In general, you should use a software or hardware wallet to take possession of any crypto that you do not plan to sell for years. Coins that you buy on exchanges are likely not actually owned by you yet until you transfer them off of the exchange to a wallet.
Before I begin talking about basic buying and trading strategies, it's important to mention volatility. Cryptocurrency trading can be a violent sport with euphoric highs and downright bloody lows. DO NOT invest more money into cryptocurrency than you can afford to lose. I don't just mean some of it either - 100% of your investment gone forever. If you can't handle that possibility, then stay away.
I just watched a cryptocurrency crash and burn from an all-time high to a loss of more than 99.99% in less than a month. I'm talking about LUNA. Just a month ago, it was sitting at more than $119 per coin and is now trading for a small fraction of a penny - $0.000859 at the time of writing. It was a top 10 coin by market cap and now it's basically worthless. Some people had millions invested in this one because it was supposed to be big.
A month ago, a $10 million investment in LUNA gave you about 84,033 coins. Today that investment is worth about $72. The point is that you can never be too careful. No matter how sure you are, don't put all of your eggs in one basket. I seriously doubt it will recover ever, but the reverse is also possible. Someone could now buy 84k coins for $72, which would be worth more than $10,000,000 if LUNA ever regained its all-time high price. It would probably be a waste of $72 bucks though.
That isn't a typical example of the crypto industry. In fact, it's probably the worst-case example in the history of cryptocurrency. However, it is a great lesson to keep in mind when doing your own trading. Spread out your bets or even try to stick with the big guys like Bitcoin and Ethereum to try to be safer. While I don't think it will happen, even Bitcoin could crash down to zero one day, so again don't invest more than you can afford to lose.
Long-Term HODL Strategy
Many professional analysts say that Bitcoin could be worth $100,000 in the next year or two. They even say potentially $1 million or more long-term. Six figures definitely seem feasible to me, but maybe not in the next year or two. Seven figures would probably require widespread adoption including major investments from most institutions and governments worldwide - still possible but less likely.
Right now, Bitcoin is trading for about $30,527. If you believe Bitcoin will hit $100k+, you could better than triple your money with an investment. An increase to $1 million would give you a return of 32 times your investment! To buy right now and stick around until the price is even $100k, you're going to need to Hold On for Dear Life (otherwise known as HODL in the crypto world).
I just got done talking about volatility. If you buy and hold Bitcoin, you will experience big swings in price while you wait to hit your long-term goal. You're going to have to resist all urges to sell during correction events. If you sell to try to buy again at a lower price, it can sometimes work, but you will often end up paying more to get back into the market.
A large upfront investment can be used to buy a crypto like Bitcoin and hold it long-term with the hopes of increasing your initial funds. It can also be treated like a retirement plan though. You can contribute a percentage of your paycheck each month to an exchange and have Bitcoin automatically purchased for you. You're more likely to make a profit buying a bit at a time compared with one random lump sum investment.
Day Trading Strategies for Beginners
In most cases, complete newbies to crypto trading really shouldn't day trade. This is a very risky investment strategy, which is usually the opposite of what a beginner wants. Your chances of losing money are very good if you do day trading and have zero experience. Even people with years of crypto experience can still have major losses attempting day trades.
With that said, if you insist on trying day trading as a beginner, I can at least attempt to help you out with a fairly simple strategy or two. When big events are taking place in the crypto world and there is a lot of uncertainty, avoid day trading without experience. These days will likely have big price swings, which can be good or very bad for your bank. You don't want to take a big loss when you are first getting started.
In calmer, everyday markets, each crypto coin will usually trade within a range. Support exists at both ends of that range. Some people want to sell to take profits at the top of the range and others want to buy at the low end. That should actually be your goal, to do both. First identify where the support levels exist. Sometimes this will carry over from previous days unless the market is breaking out up or down. When you identify the support levels, buy in at the lower end and sell at the higher side. Don't wait for absolute low and high prices though - getting close is enough.
The reason why day trading can be hard is that it can be difficult to predict overall market momentum. Even if you identify the support levels, the price can break through either of them at any time. If the overall price seems to be trending down each day, don't complicate your job trying to trade from the low to the high end of support levels. Those are the times when the price is likely to break lower and leave you with significant losses.
Find more info about buying and holding vs day trading in this related article: Should I Day Trade or Buy & Hold?
How to Pick a Crypto Coin
Choosing which cryptocurrency coin to buy for your investment can be a difficult task. Besides the original Bitcoin, there are literally tens of thousands of others, called altcoins. The king of the altcoins is called Ethereum or Ether. In my opinion, investing in either of the two main coins are the safest bets in all of crypto. I'm not saying that it's not possible for them to drop to zero, although I doubt it will ever happen. However, if those coins drop to zero, the rest of the market will likely be hitting zero with them.
When you want to invest outside of the "Big Two", you're taking an even bigger risk in an already risky market. You really need to do your research when choosing other altcoins to make sure you pick a long-term winner. In my opinion, I believe a coin needs a real-life purpose and use to exist and flourish long-term.
The alure of people getting rich by investing in cryptocurrency is something that most investors will probably never experience. The vast majority of big-time crypto millionaires that have been created were either founders of the tokens or early investors. You won't find the brand-new crypto coins on most exchanges. That means the largest potential gains are over for most coins by the time you see them to buy. There are definitely some exceptions to this rule. However, this seems to be the case more often than not. While you may not get rich with crypto, you can still make good money investing that can often beat returns found in the stock market.
Bitcoin & Ethereum
As I mentioned already, the top two cryptocurrencies are Bitcoin and Ethereum. These are layer 1 coins. Some of the other top coins are layer 2 coins that are actually based on these networks. In my opinion, these two are the safer investments long-term. I personally have investments in both. While I dabble in some other altcoins, the vast majority of my crypto portfolio lies here.
Unless cryptocurrencies completely die and tank, these two, especially Bitcoin, are the most likely to continue to survive. There are certainly no safe bets in this industry though. Even the top two coins can have rapid price drops, it doesn't mean they are in the process of collapsing. If you look back at the history of Bitcoin in particular, you'll see big ups and downs over time. As long as the prices continue to rise long-term, I'll still consider these good investments.
If you plan to contribute a portion of your paycheck to be invested into Bitcoin and Ether, you can automatically schedule an exchange to invest at the given market price each week. Over time, this strategy will balance out to give you a good dollar cost average. When you have a larger amount to invest all at once, you'll profit more in the long-run if you wait for a long-term price bottom to buy. At this moment in mid-May 2022, I believe we are in the neighborhood of one of these bottoms. That would make now a great time to make a large investment into Bitcoin or Ethereum to hold long-term.
Remember, if you're trying to make a large investment at the bottom you don't have to get the absolute lowest price. If you look at long-term charts for Bitcoin, you can see the average levels where this coin is likely to bottom out now and in the future. Set your sights above those targets and be happy to have the opportunity to buy at prices in that neighborhood. Long-term, it really won't matter if you pay a few hundred or even a few thousand more for each Bitcoin.
One final way you can invest in cryptocurrency, even as a complete beginner, is with Bitcoin mining. A few companies such as River will do all of the work for you. Even at the hopeful market bottom of $30k, Bitcoin can still be mined at a nice profit. Big companies that can negotiate great rates on mining machines and/or electricity can mine a single Bitcoin for less than $7000. Even small-time miners with higher electricity costs can mine for $10k per coin.
I personally use the company I mentioned above, River. With them, you can purchase Bitcoin mining machines and have them host the machines for you. After buying the machines, you just pay for electricity costs and big machine repairs. River does all of the actual work for you, so you just sit back and collect a "paycheck" in the form of Bitcoin each day.
There are some benefits to mining Bitcoin compared with buying it outright. The cost is the biggest long-term benefit. You can simply obtain Bitcoin cheaper mining them, at least as long as prices stay at or above current levels. Operating as a business mining, you get tax benefits too since you can deduct the cost of electricity and mining machines. That means you deduct your entire expense to obtain Bitcoin, which you can't do from an outright purchase.
Bitcoin mining at home is actually possible. I really don't recommend it though unless you know what you are doing and getting into. Mining machines are loud, and they take a lot of electricity. The electrical wiring already in your home won't support much mining since real Bitcoin mining ASIC machines need the same socket that your clothes dryer uses. You can have an electrician make changes and additions that will allow it, but you still have to worry about the noise and major ventilation for cooling.
My local electricity costs are actually more than 50% higher than what River charges for electricity. I own my own home and have a separate garage / office building on the property. I'm in an agriculture zone, so I don't have the same noise restrictions as most people do in a neighborhood. I have the technical knowledge to run my own machines. Despite all of those benefits that would be perfect for mining my own Bitcoin at home, I still benefit more by paying River to do it for me because of the much cheaper electricity costs. Besides the cost of the actual machines, the electricity will be the most costly expense.