The best strategy for simple investing in cryptocurrencies (part 1)

When I started to learn about Bitcoin and cryptocurrencies, like most others, I wasn’t interested in technology that much. I was more interested in how to earn big money and get rich fast. Most newcomers make this mistake. To be clear, I’m still mostly interested in earning money, but I understand much more about the technology behind cryptocurrencies and respect the idea behind it. This article aims to help you see the full process and if you are smart, learn from my mistakes and just jump directly to earning money part!

The story of trading

At the start of my journey, like most others, I saw Bitcoin as means to get rich fast. But I decided to be smart about it and try to learn as much as I can about trading before I start trading with my money. I read a lot of trading tutorials, studied candlestick patterns, and candlestick shapes. A lot of my time was spent hanging on the Trading View trading ideas section. I wasn’t interested that much in which coins will grow 50%, I was more interested in WHY the author thinks the coin will grow or decline. That was my way of learning chart analysis from others, by copying what I deemed as quality analysis and discarding what I thought it is bullshit.

After a lot of reading, learning, and analysis, I started trading! I remember my first good trade, shorting BTC touch of the declining trendline, with shooting star top on 1H chart with 5x leverage margin trade on Kraken. It was an adrenaline rush and earned me more than 2000$ in a few hours!

I was ecstatic, confident in my abilities, on top of the world. Little did I know how the next 12 months will play out.

Quickly trading consumed more and more of my time. Constantly checking my phone so I don’t miss the next big trade. Setting alarms to wake me up in the middle of the night so I can position for trade. Staying awake most of the night so my trades don’t go in the wrong direction and I don’t lose money.

Adrenaline was constant.

I started having problems sleeping, my mind was always rushing, and I was in constant fear of missing out (FOMO) next good trade, or if I was in a trade, trade going the wrong way.

My social life suffered since even when I was around other people, I couldn’t focus on them. I was always focused on crypto prices and trades. My work suffered, I was sleep-deprived, and constantly had a trading tab opened on the work machine with alarms set. And what’s worst, I was getting distanced from my family.

After 12 months of constantly trading, with a lot of winning and losing trades, I lost more than 60% of my initial capital. That’s when I stopped trading and reflected back on the last year, the good and the bad.

I learned a lot in those 12 months, but I couldn’t continue on the same path since it was a path of autodestruction. After a few weeks of self-reflecting, the decision was made on how to continue further.

The story of investing

My requirements were:

  1. Investing should require minimum amount of time and I shouldn’t be stuck watching charts all day.
  2. I’m investing long term (2-3 years), and I’m willing to invest up to 5% of my yearly income in crypto.
  3. I can invest more then 5% only if it’s not comming from my current income.

Based on this I decided on the best investment strategy for me.

It’s a multi-part strategy composed of DCA (dollar cost averaging), passive interest income, and partly selling and reinvesting. Let’s explain it further.

Do a quality research of coins you want to invest in

Start by researching coins you want to invest in and do it thoroughly! In my book, quality projects aren’t done by an unknown anonymous team, they are done by people with first and last names behind the project.

Don’t chase quick money and big promises, that’s a good way to fall for crypto scams. Pick projects with long-term future, vision, and good teams behind them.

I suggest you invest in more than one coin (or project) but don’t spread yourself too thin. In my opinion, an ideal number of coins to invest in is 4-7 and I’m sticking to that.

Dollar cost averaging or buying crypto often in same amounts

Let’s say you and members of your family have a total yearly income of 60.000$ or 5.000$ / month and you are comfortable risking 10% for investing in cryptocurrencies. That means you have 500$ a month to invest.

It’s important that you pick an amount that you will not be stressed about if the value drops 50% or even goes to 0$ (it probably won’t if you pick good projects).

The next thing to do is to decide how often you want to invest. It can be once a month, twice a month, every week, multiple times a week, or even every day.

I decided to buy crypto 3 times a week, on Monday, Wednesday, and Friday. This way I could average my buy price more often than if I was buying once a month. You need to decide what works best for you. Important thing is to keep buying, preferably automatically.

When you decide how often you want to buy crypto, divide the yearly amount by the number of yearly buys.

60.000$ x 10% = 6.000$ yearly
52 weeks x 3 buy = 156 yearly buys
6.000$ / 156 buys = 38,46$ / buy

Now you know know how much you will spend, and what to spend it on! The last thing you need to decide is, will you spend the same amount on every coin or you will prioritize some (spend more on then). If you are buying as often as I am, I suggest you don’t buy less than 10-15$ / coin / transaction.

Passive income from interest

After some time, when I saw my investment strategy is working very well, I decided to increase the amount I’m investing. I was investing 5% of my family income and increased it to 7%, but I wasn’t comfortable risking more than that.

Since I wanted to invest more, I needed to come up with a way to invest more without seriously risking my capital.

And it came to me. It was the time of DeFi boom so I transferred part of my savings from my bank account to a crypto exchange, where I converted it into stable coins (USDC, USDT, and BUSD). I split those into three equal parts, staked two parts on DeFi projects (PancakeSwap, BeltFinance), and one stake went to a reputable crypto exchange that paid out interest for lending money to margin traders (FTX exchange).

Buuuum!! Average 15% yearly interest on stable coins which I could invest in crypto!

Yes, passive earning in crypto still has risks involved. Risks like DeFi project getting hacked (BeltFinance was hacked once), or stable coin losing its peg with US dollar, or an exchange going bankrupt, but those risks can be managed and minimized.

You can stake in DeFi project which is tested by time (and hackers) and not be greedy and invest in a new project which promises unrealistically high interest.

You can pick stable coins issued by known and regulated entities, like USDC, PAX, or BUSD, which are all issued by US companies.

You can pick a regulated and safer exchange. I made an article with a list of (in my opinion) the best and safest crypto exchanges.

Interest rates now are lower. They range from 6-10% if you are using reputable sources, more if you use not so reputable sources. But this is still a great way to passively earn money you can further invest.

Set a target for your investment

Set yourself a target when you will start taking profit (selling coins). It can be a time target, let’s say in 2 or 3 years. Or it can be a price target at which you will sell part or all of your investment and take profit. It can even be something like you’ll take profit when you earn enough to buy ***something***. 🙂

This is important! Set a target for your investment or you will be stuck in the limbo of never selling.

Partly selling and reinvesting

I thought for some time if I should write this part, but in the end, I decided to write it. Don’t do it if you don’t have extensive trading experience.

Rarely, maybe once a year, after prolonged periods of market bullishness, when everything is green for months, I analyze charts searching for clues that will help me pinpoint the top. It’s not an exact price, it’s more like an educated guess of the price range in which the top for that coin will be.

After the price reaches the predicted level, I will sell 50% of the investment. But not at once. For example, if I predict coin top will be in the price range from 160€ to 180€, I will sell partly at 165€, 170€, 175€, and 180€.

Then I’ll use that money to passively earn income (interest) while I wait for the price to go down. The wait is over when the price drops to the level I marked as buying back level. Buying is done in the same fashion as selling. I start buying when it drops below the price I marked and usually buy every 5-10% drop until I run out of money I set aside for that coin. The amount of money I reinvest is exactly the same amount that I earned by selling that coin.

Important! I’m not stopping my automatic weekly investments, they are regular and not affected by this in any way.

How it all went

So let us recap this fast:

  • Find good projects and coins to invest in. My suggestion is 4-7 coins. Currently I have 5 coins on recurring buys, three times a week.
  • Decide what yearly amount you can aford to invest without worring about it to much.
  • Decide how many times a week/month you want to invest and split your amount into equal parts.
  • Buy in regular intervals without worrying about price movements. You can buy manually, but it’s best if you can setup automatic recurring buys. Check my article for exchanges supporting automatic recurring investing.
  • If you have extra capital, you can put it to use and earn passive income from interest. Then you can reinvest that extra income into projects you like.
  • Set a target for your investment and stick to it!

It’s not hard, but when you start, you need to stick to your plan!

I invested in a total of 6 coins during my first investment cycle which lasted for around 26 months. These are the results:

  • 1st coin – average DCA price of 0,07€, sold at 0,858€, price increase of 12,26x
  • 2nd coin – average DCA price of 39.642,27€, sold at 52.692,93€, price increase of 1,33x
  • 3rd coin – average DCA price of 1.554,48€, sold at 3.854,86€, price increase of 2,48x
  • 4th coin – average DCA price of 250,91€, sold at 536,82€, price increase of 2,14x
  • 5th coin – average DCA price of 23,22€, sold at 129,25€, price increase of 5,57x
  • 6th coin – average DCA price of 30,88€, sold at 65,54€, price increase of 2,12x

If you analyze my results, you’ll see why you should invest in more than one project. My ROI ranged from 33% on the weakest performing coin, to 1126% on the best performing coin, with an average ROI of around 173%. If I only invested in one coin, and it happened to be 2nd coin, I would have ROI of 33% without a lot of times with negative ROI.

In the next article which will be published as part 2 of this article, I’ll cover how to automate your investment with automatic recurring buys.

Good luck with your investments!

Libertus Avatar

Crypto enthusiast since February 2018 and apparently popular scriptwriter on Tradingview. :) Working in a senior management position in a company that has absolutely nothing to do with crypto or capital markets. This is my personal blog that aims to help people understand crypto and make it easier for them to make their own conclusions. Nothing I write here is an investment advice or advice to buy. Always do extensive research prior to buying or investing your hard-earned money in anything, especially cryptocurrencies. Cryptocurrency space is more than 90% scam, so losing money is very easy. Since I am not a native English speaker, forgive me for any spelling mistakes.

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