Cryptocurrency: Is One Trading Strategy Better Than The Other?

In collaboration with CoinSmart

Cryptocurrency trading is the newest and one of the most popular forms of investment in the financial markets today. In fact, Bitcoin alone accounts for nearly billions of dollars worth of the daily trading volume in the crypto space. If you take other cryptocurrencies into account, you can get an idea of the magnitude of cryptocurrencies being traded on a daily basis.

It is essential to understand that investing in cryptocurrencies involves significant risk. You require a robust trading strategy in place so that you don’t lose your investment. We’re going to talk about two investment strategies that can get you started in the crypto space.

What is crypto trading?

Cryptocurrency trading works via speculation on the price movements of various coins through an exchange. In all essence and purposes, cryptocurrency trading is pretty similar to traditional trading. Depending on your choice, you can either trade multiple times a day to earn chunks of profits on your chosen coins. You may also buy different tokens and hold them long-term to generate profit.

Two simple crypto trading strategies

As mentioned earlier, cryptocurrency trading is a high-risk investment, and starting an investment without a trading strategy in place puts you at the risk of losing your entire investment.

1. Dollar-cost averaging (DCA)

This is a popular and well-tested trading strategy that is best employed over a long period. The concept behind dollar-cost averaging is simple enough. Instead of utilizing all your investment at once, you divide your investment into smaller amounts, fix a time and a day of the week, and invest only on that particular day and time.

Let’s look at a brief example to understand. Suppose you have $1000 and decide to invest in Bitcoin. However, you choose to employ the DCA strategy instead of investing the full amount. You divide the $1000 into smaller amounts of $100 each. After dividing the investment amount into smaller portions, you pick a day of the week, let us assume Friday, and decide to buy $100 worth of Bitcoin every Friday over the next ten weeks until you have invested the entire amount.

The DCA strategy helps to reduce the impact that market volatility could have on investments. It allows you to buy more Bitcoin on average than what you would have done had you invested your money all at once. This is an excellent strategy for beginners.

2. Look for major events in the crypto space

Investing during the build-up to or just after a major event is also a strategy that can be looked at by investors. Significant events like halving or planned hard forks may have a positive impact on the price of a cryptocurrency. For example, in the case of Bitcoin, halving has always had a positive effect on the price. Halving is the reduction of the rate at which Bitcoin is mined, which is essentially a decrease in the reward for miners. The halving occurs once every four years or every 210,000 blocks mined, and there have been three halvings for the largest and most popular cryptocurrency.

Historically, Bitcoin’s price has always embarked on a bull run after a halving event. When the miner rewards are cut in half, economics and the law of supply and demand kick in. When the supply shrinks, the demand increases exponentially, reflected in the price increase. Looking at Bitcoin’s latest halving event, the price of the cryptocurrency on the day of the halving, May 11, 2020, was $12,017. Post halving, the price remained static until July after which it started rising gradually. By December 2020, Bitcoin was on a steep upward trajectory with its price hitting $36,330, a mere 7 months after the halving. The bull run peaked in April 2021 when Bitcoin hit its highest ever price of $81,256. 

Ethereum’s (ETH) London hard fork, which just took place on August 5, 2021, is also predicted to positively impact the cryptocurrency’s price. The London hard fork will improve the unpredictability and volatility of transaction costs. The rise of decentralized finance will also see a convergence between cryptocurrencies and mainstream finance, pushing demand for ETH and leading to an increase in its price. In fact, the price of ETH started to rally only an hour after the London hard fork was initiated, with the price jumping from $3257 to $3482.

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How to start investing in cryptocurrencies in Canada?

Canada has several cryptocurrency exchanges. CoinSmart is one of the most trusted crypto platforms for trading crypto in Canada. Their jargon-free, easy-to-use interface is the perfect way for you to start your foray into cryptocurrency investing. They have a host of good features for both beginners and advanced traders.

Founded in 2018 by Jeremy Koven, Michael Koral, and Justin Hartzman, CoinSmart is one of the most reliable and beginner-friendly exchanges. CoinSmart’s goal is to make cryptocurrencies accessible by offering its users a simple and sleek user interface, quick verification, robust security, 24-hour omnichannel support, and direct CAD, EUR, USD pairs for major coins. Ready? Invest in cryptocurrency using this Canadian exchange.