There are currently several Bitcoin investment techniques, as well as investment philosophies out there, some of which we cover here.
Of course, please note that this reading is not to favor one technique or philosophy over another. However, it is written to give an unbiased view from multiple sides and also to help you achieve a healthy risk balance in your investment decisions. That being said, let’s jump right in!
There are basically two ways to go about investing in Bitcoin, namely, as a long-term investment (or HODL), and as a series of short term trades.
While short term trade analysis is more leaning to the study of price movements, long term trades are often about looking at the underlying system (or network, in the case of Bitcoin) that backs the asset, not just its immediate price performance.
So, while a day trader is looking at trend lines, patterns and formations on the Bitcoin chart, and opportunities to make quick profits, a long term investor looks at the vision behind a protocol, the network’s health, legislation, and more.
Also, there is often a flawed moral critique, usually from “long-term Bitcoin investors,” who claim that short term trades are superficial and risky. However, it actually depends on your own goals and expectations. The crypto markets are known for their volatility and even quick trades in and out of different assets add liquidity to the market and impact prices.
In his book, ‘charting and technical analysis’, Fred Mc Allen, a stock analyst, pointed out that we should “…not make day-trading decisions on a yearly chart and vice versa.” While we agree with this overall approach, we do think that all investors should look at immediate price movements as well as the underlying fundamentals.
Who makes your investment decisions for you?
There are two options with who makes your investment decisions. This could be you or a portfolio management professional or fund. Let’s have a closer look at these options.
Managing your portfolio by yourself
If you have a proven track record of successful portfolio management and a good understanding of the blockchain and crypto economy, then your best choice is to do your own research and manage your portfolio by yourself. It is, however, important to know that all risks are yours to bear.
This is where a good understanding of risk management through proper diversification of your portfolio across uncorrelated assets comes in handy. In other words, you ought to know “how not to put all your eggs in one basket, or better, what baskets to put them in and when.”
Also, beyond an understanding of chart analysis, accurate valuation comes in handy when determining whether an asset is undervalued or overvalued. This is an important factor in determining whether you want buy or sell, or go long or short if you’re trading futures contracts.
Finally, you want to stay away from pump-and-dump groups as they are shrouded in secrecy and manipulation – mostly designed to favor the organizers.
Leaving your investment decisions to a professional crypto manager or fund
These are cryptocurrency versions of traditional financial market investment funds. Taking on a similar form, crypto funds come with several twists, as well as rules of engagement.
These funds include crypto index funds, crypto hedge funds and crypto exchange traded funds (ETFs).
Similar to traditional funds, the fund’s portfolios are usually pooled from several investors and distributed across multiple assets such as Bitcoin and other carefully selected altcoins. The exposure to risk is therefore reduced.
Choosing a crypto fund for your Bitcoin investment
Invest through regulated funds: Whichever option you favor, it’s important to carefully study the regulatory framework by which your fund of interest is bound.
Request for a private placement memorandum (PPM): this is a legal document provided to prospective investors, which explains the details of the investment; covering details like the nature of the investment, types of securities involved, degree of exposure, expected ROIs and several other important details.
Don’t stop researching: The crypto-market is largely still evolving with new regulations, protocol updates, as well as assets, spurring up almost every week. It’s therefore imperative that investors do all necessary research before taking the big step.
As Warren Buffet said, “Only invest in what you understand”. While this may sound cliché, being informed is crucial to success in the long term.
One way to get a better understanding is by trying to trade Bitcoin in the form of credit first. If you open an account with AAX and helps us verify your identity, we will give you $10 worth of Bitcoin to trade with, and yes, you can withdraw the profits.