Four Tips to Maximize Your Crypto Investment

While purchasing and holding crypto investments is a popular option for beginner investors, there are other simple steps you can take to get a lot more out of your asset.

Cryptocurrency asset has grown substantially over the last few years, with 14% of Americans now holding digital investments in their portfolios, up from a reported 1% in 2016. Some industry managers have predicted this figure could double by the end of this year after 13% of survey participants expressed intentions to buy cryptocurrencies over the next few months.

For many new investors entering the market, learning how to get the most out of your cryptocurrencies investments is essential for decreasing risk and maximizing any potential returns. Here are four utility tips to get you started.

1. Diversification

One of the easiest ways to reduce risk, and in some cases help improve returns, is to invest in a variety of different crypto assets. This is known in the trading world as diversification or asset allocation. The idea behind this is to spread out your investments to average your losses when the market falls.

2. Copy trading

Copy-trading, as the name suggests, is a type of asset trading where you automatically copy the trades of an experienced investor. all examples of platforms that allow you to do this.

Setup is easy:

  • select a trader to follow based on factors like past performance, the number of followers, and overall risk rating (how risky the assets invested are). 
  • Link your account to your movements.
  • When they decide to buy or sell a crypto asset, their wallet automatically does the same.

3. Defi staking

This is where it gets a little more technical. 

Defi staking is a way to lock your crypto assets on special, autonomous platforms known as “decentralized applications” to earn annual interest.

 Defi, or decentralized finance, is a sector of the cryptocurrency industry that is taking traditional financial services like credit and insurance and bringing them onto the blockchain. The main difference is that the decentralized finance applications that these services run on are not controlled or maintained by any company. through their communities of users and the automated execution of computer programs known as “smart contracts”.

Please read these articles if you are unfamiliar with decentralized applications and smart contracts.

Participating in Defi is a great way to earn an annual return on your deposited assets if you only plan to buy and hold crypto. The process is similar to depositing money into a bank savings account, except instead of less than 1% interest, you can typically earn 5-25% and in some cases more. 

However, it is worth noting that not all cryptocurrencies can be staked. A full list of supported staking assets can be found here. There are also other risks to consider when it comes to Defi platforms. These include: 

  • Defi platforms are unregulated. This means there is no consumer protection if you lose your client due to theft or fraud. 
  • The code of various Defi platforms has not been checked by a third party to ensure that there are no bugs or exploitable bugs. This makes platforms vulnerable to hacks and exploits. So far in 2021, $361 million has already been stolen from Defi applications.

4. Learn to hedge crypto trades

Hedging is a type of investment strategy that aims to reduce potential risks and losses arising from unfavorable price movements in the market. It involves making the main trade in the direction you expect the market to go and then the second trade in the opposite direction. The idea here is that if the market goes against you, the second back trade you took will make a profit and erase the losses from your first trade. Here two parties agree to trade a specific asset at a predetermined price and date.