Best Methods To Conservatively Invest In Bitcoin

2021/10/13 10:07:37

The crypto market is infamous for being irrationally volatile. For day traders, this extreme volatility is a goldmine, but it is a cause for worry for investors. Perhaps the most pressing question, especially for conservative Bitcoin investors, is how they can benefit from Bitcoin's volatility in the long term.

Who is a Bitcoin Conservative Investor?

The top distinguishing trait of a conservative investor is their need to preserve their capital. Bitcoin conservative investors prioritize capital; that means they are willing to trade off high returns for more stability. Obviously, achieving this can be a tall order, especially in the crypto market.

In a market that's constantly and unpredictably fluctuating, it's difficult to preserve your capital investment, given that your holding could significantly drop in value within hours. That's why conservative Bitcoin investors employ strategies that are designed to compensate them for the volatility.

The Dollar Cost Averaging (DCA) Method

Everyone knows that the easiest way to profit is to buy an investment at the lowest value then sell when prices increase. Given Bitcoin's short-term volatility, the ultimate strategy for long-term investors is the dollar cost averaging method. It allows them to automatically buy more BTC when prices fall and buy less when prices rise.

DCA should help you build up a certain position size (the amount of an asset in your possession). At the same time, it protects you from the influence of short-term volatility.

With this strategy, you periodically divide the amount of money you want to invest in Bitcoin into equal amounts. The current price of Bitcoin does not play a role in the Dollar Cost Average investment strategy. The only constant in this method is the time interval.

In this case, The investment period is divided by you into clearly defined time intervals, whereby after each interval, you invest the same amount of money again. As mentioned earlier, the current price does not play a role in your investment decision. The time interval is determined by yourself, and your deposits can be made, for example, weekly or after each month.

Dollar Cost Averaging is a good way to invest in times of great uncertainty and volatility. It eliminates uncertainty. It provides an investor with an average mathematical value for your investment decision removing any emotions of FOMO or FUD from your investment strategy. The DCA strategy protects you from unfortunate market entries and the negative feelings that come with them in the long run.

Note that this strategy can also be used to invest in altcoins.

Investing in Bitcoin ETFs

The crypto market boom experienced in the past has resulted in the creation of several derivatives for BTC. Bitcoin ETFs offer individual investors the opportunity to invest in Bitcoins for the long term without buying the Bitcoins directly.

An ETF is a structured investment that can be traded like securities. ETFs offer investors the opportunity to buy and sell a basket of assets without having to buy all the components individually.

Here's how an ETF works. The fund provider owns the underlying BTC, designs a fund to track its performance, and then sells shares in that fund to investors. A Bitcoin ETF is an ETF that mimics the price fluctuation of BTC. A regulated bank, crypto exchange, or asset management company would raise funds from investors – and from here buy Bitcoin (or in some cases, BTC futures) on behalf of investors. In return, a buyer would receive shares in the Bitcoin ETF, with prices rising or falling depending on the value of the cryptocurrency.

It allows investors to limit the risks of investing in BTC by leveraging the expertise of professional fund managers. Bitcoin ETFs are especially interesting for investors who are not allowed or do not want to invest directly in Bitcoin.

Using Bitcoin Futures for Hedging

One of the savvy investment strategies of dealing with volatility is through hedging. BTC hedging involves opening strategically trading in the futures market to offset any potential losses in the spot market.

Crypto investors typically hold the actual BTC in their wallets, which means they intend to appreciate BTC. But with the rampant volatility in the crypto market, the certainty that the price will appreciate in the long term is non-existent. This is where the BTC futures come in.

Futures contracts are forward contracts; they are agreements between two traders that oblige one trader to buy or sell an asset at a certain time, quantity, and price. Trading futures essentially create a contract or agreement to buy or sell a particular asset in the future at a fixed price set today. The asset's actual market price at the future trading time does not matter, as the price is set when the contract is drawn.

In this case, the BTC investor enters into a short contract. This means the investor agrees to sell BTC at a fixed price at a later date. So, if the price of BTC drops, the futures contract guarantees that they have secured their capital.

Conclusion

Being a conservative Bitcoin investor is probably one of the smartest moves anyone can make. Using the dollar cost averaging method, investing in Bitcoin ETFs, and hedging your portfolio with the BTC futures guarantees that you limit your downside. There are many other reliable strategies to effectively invest and trade the crypto market but the ones mentioned above suit the best for conservative investors who don't prefer taking a lot of risk.

If you want to increase your BTC portfolio apart from investing, KuCoin trading bot is the best way to do so. Therefore, do consider checking its features. Also, follow the KuCoin Blog for more interesting investment strategies. Happy trading!