The global crypto market runs 24×7 with equal access to all investors without a bias for geography or nationality. It is a nascent, decade-old market with potential to grow multi-fold over the next few years. More than one crore Indians have already embraced cryptocurrencies with a 600+ per cent growth in cumulative investments in the last one year, according to Chainalysis, a leading compliance provider.
For those ready to dip their toes into the cryptocurrency world, discerning the best time to invest is key. The crypto market is notoriously volatile with as much as 30 per cent variance in prices within a day. However, managing risk is possible and within everyone’s reach. We continue to advise investors to only invest a minor share of the overall portfolio (up to 3 per cent) in cryptocurrencies. Strategies vary according to individual goals and risk appetite but the following approach works in general even for amateurs.
Building wealth over time
Building wealth is about patience as much as it is about timing the entry. Crypto assets follow cycles and compound over time. In the crypto world, long term investors are more likely to gain wealth than short-term traders. Traders use technical analysis to predict future patterns of a coin depending on its historical performance, trade volumes and other indicators. These indicators, however, serve as a compass rather than as the holy grail. Until the market hits a particular maturity. For example, when a tweet from an influencer doesn’t swing the momentum, timing the market with short trades is mostly harmful. ‘Invest and forget’ is a better strategy than worrying about daily patterns.
The entry point
A proven method of managing entry points is to do Dollar Cost Averaging (DCA). DCA is a straightforward investment strategy that works irrespective of the current price of an asset. Investors following DCA split the investment pool and buy assets at regular intervals of time. This strategy minimizes volatility risk as it would prevent an entry at a single price point.
Timing the exit
While entry points provide opportunities to grow portfolio, exits are when profits get realized. Each investor should be prudent to take out their principal and some profits along the way once a particular price target is achieved in future. If the market proceeds into a bear phase (a period of declining prices), consider entry again to realize future gains.
2021 is still early
Globally, there are about 120 million investors in cryptocurrencies in a world with a population of 7.8 billion. The adoption is growing rapidly but there is potential for more. Compared to the global stock market capitalization of about $100 trillion, the cryptocurrency market is valued less than 2 per cent today. So, entering any day in 2021 will still be good enough for most investors.
The only consideration for investment today is to determine which cryptocurrencies will continue to exist five years from now. Bitcoin, Ethereum and other large market cap coins have a higher probability of existence and hence are relatively safer to start with.
(Vikram Subburaj is CEO & co-founder, Giottus Cryptocurrency Exchange. Views are his own)