It’s hard to deny that cryptocurrency had a banner year in 2024. In January, the U.S. Securities and Exchange Commission (SEC) approved the listing and trading of spot bitcoin electronically traded products (ETP), legitimizing the currency and opening another access point for curious and committed investors alike. By December, bitcoin, arguably the most influential cryptocurrency, had reached the $100,000 milestone.

Expectations for cryptocurrency have only heightened as a new U.S. administration—one that seems largely favorable to crypto growth—takes the helm. For savvy investors, this new economic environment can have significant potential.

If you’re contemplating adding cryptocurrency to your portfolio or expanding its presence, here are 11 tips to help you better manage your crypto investment strategy.

Why Invest in Cryptocurrency?

A little over 15 years ago, the future of cryptocurrency was unknown at best, but today, indicators suggest that crypto is here to stay. According to a 2024 Security.org study, about 40% of Americans say they own cryptocurrency. That’s a 30% rise from 2023, and ownership is expected to trend upward in the coming years. As ownership grows, early investors are likely to see the highest returns.

Cryptocurrency is reshaping the way we think about money and the global economy. When added to any investment portfolio, it offers the potential for high returns and diversification beyond traditional assets.

Many investors have already become crypto millionaires off of the backs of Bitcoin and other altcoins. While perceived as more risky than other investments, history tells us that crypto investments have the potential to offer sizable and consistent returns.

11 Tips for Optimizing Your Crypto Investment Strategy

If you’re considering adding cryptocurrency to your investment portfolio, consider these strategies to reduce risk and increase returns.

1. Use Dollar-Cost Averaging to Generate Sustainable Gains

Dollar-Cost Averaging (DCA) is a strategy that involves investing a fixed amount of money at regular intervals, regardless of market ebbs and flows. This is in contrast to momentum trading, which centers on short-term trends.

Using a DCA strategy for cryptocurrency is particularly effective because it reduces the impact of market volatility and can help you build wealth over time without trying to predict the ups and downs of what can occasionally be a volatile market.

2. Track Moving Cost Averages to Monitor Trends

Tracking moving cost averages (MCA) can help you understand market trends and make informed decisions about when to enter or exit a market. For instance, you can monitor crypto markets for a particular period, such as 50 or 200 days, noting averages to gauge the trajectory of a specific asset.

3. Look for Coins with Greater Liquidity

Investing in coins with greater liquidity can make it easier to convert those coins to cash or another asset without a significant price fluctuation. This usually means investing in more widely accepted coins with a higher trade volume.

Trading altcoins with less volume often requires converting the altcoin to Bitcoin and then the Bitcoin to cash. Examples of crypto coins with greater liquidity include Bitcoin (BTC) and Ethereum (ETH), though this can shift over time as the market evolves.

4. Offset Some Risk with Altcoins

Although altcoins may be less liquid, investing in them can offset some of the risks associated with more mainstream coins. Altcoins often serve specific markets or uses, such as decentralized finance (DeFi), gaming, or supply chain solutions.

For example, coins like Graphite (G@) are gaining attention as they usher in second-generation blockchain technology. By carefully researching and selecting altcoins, you can reduce reliance on major cryptocurrencies while tapping into niche opportunities.

5. Move a Portion of Your Investments into a Self-Directed Retirement Plan

Self-directed retirement plans, such as a Roth self-directed IRA (SDIRA) or 401(k), allow you to invest in cryptocurrency without incurring capital gains tax on earnings. A “crypto IRA” also lets you leverage cryptocurrency in your retirement account, which is barred in standard retirement accounts.

6. Use a Secure Wallet

When you invest in cryptocurrency, consider getting a secure wallet instead of letting your crypto coins stay in an exchange. When you use an exchange, both your funds and your private keys (how you access your cryptocurrency) are held in the same place, making it easier for malicious parties to steal your investment.

Wallets, which can be hardware, software or paper, keep your private keys offline while your funds remain in the blockchain. Your private key allows you to buy and sell cryptocurrency by providing the exact location of those funds on the blockchain.

The best approach is to use an exchange to store funds that you plan to trade in the immediate future while using a wallet to manage long-term crypto investments.

7. Research Coins Deeply to Predict Future Potential

The cryptocurrency market is highly dynamic, with new coins emerging regularly. To identify promising investments, research the underlying technology, use cases, and teams behind various coins.

For example, consider how a coin could disrupt industries such as banking, artificial intelligence, or supply chain management. Assessing factors like scalability, adoption rates, and partnerships can provide valuable insights into a coin’s potential growth and how it plays into your investment goals.

8. Earn Free Coins with Crypto Staking

Crypto staking allows you to leverage some of your lock up, or “stake,” your coins in the crypto blockchain network in exchange for the opportunity to be randomly chosen as a validator, a process known as the proof-of-stake (PoS) consensus mechanism.

Staking provides steady returns and allows you to contribute to the network’s security and efficiency. Though similar to crypto mining, randomization democratizes the opportunity instead of making it a competition.

9. Try Your Hand at Arbitrage

Arbitrage involves taking advantage of price differences for the same cryptocurrency across different exchanges. For instance, if Bitcoin costs $93,800 on one exchange and $95,100 on another, you can buy low and sell high, earning the difference.

While arbitrage can be profitable, it requires speed and precision. Factors such as transaction fees and withdrawal times must also be considered to ensure profitability. Tools like arbitrage bots can help streamline the process.

10. Write Off Losses on Your Taxes

Writing off losses, also known as “tax loss harvesting,” is a strategy that allows you to offset capital gains by selling underperforming assets at a loss. These losses can reduce your taxable income.

For example, if you incurred a $2,000 loss from one cryptocurrency and a $5,000 gain from another, you’d only owe taxes on the $3,000 net gain. To correctly write off losses and leverage this strategy, you must keep detailed records of your transactions.

11. Monitor Outside Trends to Predict Movements

A range of external factors, including regulations, elections, and economic developments in the US and globally, influence cryptocurrency prices.

For instance, the 2024 election significantly contributed to Bitcoin’s $100,000 milestone. Similarly, the SEC’s approval of Bitcoin and Ethereum ETPs signaled a broader acceptance of digital currency, resulting in lifts.

Staying informed about these trends can help you anticipate market movements and adjust your crypto trading strategies accordingly.

FAQs

What tools or apps can help track and manage cryptocurrency investments?

Several tools and apps, including those listed below, can help you track and manage cryptocurrency investments:

• CoinLedger
• CoinMarketCap
• CoinGecko
• Delta
• Kubera

The best crypto tools or apps depend on your crypto investment strategy, portfolio and desired features. Many platforms offer basic tracking for free, though most charge for enhanced features. Review rates, features and platform functionality before selecting a crypto tool or app.

How can I minimize risks when investing in volatile cryptocurrencies?

To reduce volatility risks associated with cryptocurrency, always research each type of coin you plan to invest in, understand direct and indirect factors (e.g., industry regulations, elections, and global commerce trends)  that can influence the market, and diversify your portfolio.

Speaking with a financial expert who can assist you in understanding the risks of cryptocurrencies and how they relate to your investment goals can also help mitigate risks.