8
min read

When to Buy Cryptocurrency and When to Sell

What you need to know to plan your cryptocurrency investment strategy.

While there is no silver bullet in crypto investment, a reasonable approach to buying and selling cryptocurrencies is imperative in successful investments. This requires understanding the crypto market, choosing the best strategy to store cryptocurrency, and lots of other nuances, which we will discuss in this article.

What you need to know about when to buy cryptocurrency

Adding Crypto Investments to Your Portfolio 

Before buying crypto, one has to decide which investment strategy they would adhere to. While the most sophisticated strategies are usually combinations of more straightforward options, in most cases, they are underpinned by some basic blocks, such as the following:

  • Speculative investment, i.e., pursues short-term profits over long-term ones, is usually at the core of daily trading. It is by far the riskiest strategy for crypto and traditional markets alike.
  • Long-term investment, i.e. different forms of going long such as hodling (just keeping your funds untouched until their price grows to the desired level), staking or lending (which allows you to earn additional funds by depositing your assets in some fashion for a set amount of time), and saving (which is basically the same as lending but is performed by a trusted third party).

As those strategies imply different investment goals, they often face different investment challenges. While the crypto market has a much lower entry threshold than the traditional ones, it still might be wise for a rookie to seek help from seasoned and duly licensed investment advisors. Nonetheless, the final investment choices are always up to you.

Once you have decided on the strategy you want to use, it would be reasonable to take a closer look at the crypto market itself to better understand its mechanics.

Understanding the Crypto Market

In 2021, the entire crypto market exceeded $2 trillion in capitalisation, yet it is still very nascent. It is not universally regulated, yet it has attracted numerous institutional players. 

However, its main distinctive feature is that it is way more dynamic and fast compared to the traditional stock market. In 2021 alone, the crypto market has plummeted to half its original capitalisation and then grew back and even higher in a matter of a few months. A similar dynamic is virtually unthinkable for the stock market. This stunning market performance has most to do with crypto's lower entry threshold and is not over-regulated compared to its traditional counterpart.

That said, the higher the market cap of a given cryptocurrency, the safer bet it is as an investment option. At the time of writing, the Top 10 cryptocurrencies by market capitalisation include the following cryptocurrencies:

  • Bitcoin
  • Ethereum
  • Binance Coin
  • Cardano
  • Solana
  • Tether (USDT)
  • Ripple
  • Polkadot
  • Dogecoin
  • USD Coin

Notably, the list includes two stablecoins whose price is set at US$1 no matter what. They have their appeal as an investment option, as we discussed here. While their prices won’t fluctuate much, depositing stablecoins like USDT in a savings account can net you interest rates of up to 12% APY.

Cryptocurrency Price Swings and Volatility

As fast recovery from an abrupt market crash suggests, cryptocurrency is usually highly volatile. Sometimes an asset can lose 80% of its price within hours but then gain 140%. Even though some tools like technical analysis seek to predict such price swings, cryptocurrency prices remain largely unpredictable in the short term. 

This price volatility underpins the enormous gains and mind-blowing losses that occur every day with daily traders of crypto. Unexpected rallies in cryptocurrency prices rarely have a worthy counterpart in the world of stocks and commodities. The recent upsurge of gas prices and futures caused by several unfavourable events is arguably the closest thing in traditional markets that resembles the volatility of crypto. 

However, the same volatility has very little significance to long-term investors as long-term charts of all well-capitalised and popular cryptocurrencies usually show an overall upward trend. While historical data cannot be used as a solid foundation for further predictions, it still shows that no matter when someone bought Bitcoin, there were points in time when the investment became profitable. 

Bitcoin chart by Coindesk
Bitcoin chart by Coindesk

Initial prices of Bitcoin were negligible enough to force a person to pay 10,000 BTC for two pizzas. Those who invested in Bitcoin back then are probably the most well off. Still, for a long while, $1,100 was the highest Bitcoin price could ever get. Most of the time, Bitcoin trades were within the corridor between $200 and $500. 

Bitcoin rose to $20,000, then fell back to $2,000. Then it rose to $60,000 and plummeted to $30,000. While those who bought it at its peak could become truly despondent watching their investment depreciate by half, eventually the price went up again and their investment became profitable. 

When you’re thinking about buying and selling Bitcoin, you have to remember to avoid panic-selling your assets and play the long game instead. So, if you choose to become a long-term investor, of course, you may want to buy Bitcoin or some other cryptocurrency that you believe in at a lower price when the market is down. Yet, the chances are that no matter the price you enter, it may go higher. So, in a way, it is never too late to invest in Bitcoin.

To sum it up:

  • The crypto market is extremely volatile and likely to stay this way for a while
  • The market’s most capitalised assets have shown growth over the long term
  • Due to the crypto market’s short-term unpredictability, the buying price of Bitcoin matters only for daily traders and other short-term investors. For long-term ones, it is of little significance at the moment.

How to Buy and Sell Cryptocurrencies

Once you have sorted out what cryptocurrencies you are going to buy and what you plan to do with them, you can finally proceed with the purchase. 

If you’re wondering about where to buy cryptocurrencies, there are several ways to buy crypto across different platforms:

  1. Through SEPA (in the EU) or SWIFT (globally) transfers
  2. With credit or debit cards
  3. Through P2P or centralised exchanges 
  4. Via minor exchange services and chatbots

For EU residents, Cabital offers to buy crypto through a SEPA transfer to the Cabital account. SEPA transfers are instant in most instances, though sums over €2,000 may take 1 or 2 days to arrive. This is the preferable way to transfer funds if you are in the eurozone. With SWIFT, the conditions are almost the same, but the transfers are available worldwide, though they may take even longer than SEPA. In both cases, transfers are protected by banks and their security systems.

Using your credit or debit card is another option. The transfers may be way faster in case of larger amounts of money, yet cards as a payment method are more susceptible to data breaches and therefore are less secure. However, applicable fees can make the purchase pricier than originally intended. In some cases, fees can add up, leaving you in the red before you even start earning. 

You can also go to a P2P or a centralised exchange. While there are major differences between those two options, such as general security, reliability, and convenience, buying crypto at an exchange is an old-fashioned way to purchase crypto. Centralised exchanges are generally safer yet offer a narrower selection of cryptos and charge a 2 to 5 per cent fee. P2P exchanges, on the other hand, charge lower fees but offer fewer payment options and lower security. Using an exchange is not recommended for larger sums. However, some of them offer over-the-counter (OTP) services for such cases that are more favourable to the customer.

Finally, if you don’t intend to spend much on crypto, you can use minor online services where you send them funds from whatever source, and they manually send you crypto to the wallet you specified. Some of such payment services are semi-automatic and work as chatbots on platforms like Telegram. In this case, you literally trust your funds to another person and have to believe in their honesty and goodwill. In those services’ defence, reports of any fraud are extremely rare. 

Payment methods comparison table
Table 1. Payment methods comparison table

How to Store Cryptocurrencies Safely

Crypto wallets are usually associated with mobile apps that allow you to send and receive cryptocurrencies on the go. They are referred to as hot wallets or digital wallets. 

Altogether, there are two major kinds of crypto wallets:

  1. Hot wallets
  2. Cold wallets

A hot wallet is usually protected with a passphrase (a sequence of 12 words you need to put in the correct order to access certain functions or the wallet itself) and whatever biometric security systems are installed on the device. Aside from the risk of theft, there is also the risk of software malfunction or bugs that may render your crypto inaccessible forever. Plus, if you forget your passphrase, there is no way to recover your funds.

Therefore, hot wallets are good for smaller amounts that you may need to access for some operational purposes. They are not recommended for long-term investors, especially if they hold significant amounts of crypto.

Cold wallets are better suited for that purpose. They are physical devices you can record your crypto on. Typically, they have varying degrees of protection, including water or fire resistance, biometric access systems, and so forth. Unlike hot wallets, they cannot render your savings obsolete because of a software bug, and the assets you keep there are literally taken off the internet. Moreover, the wallet can be stored in a safe or a bank cell with increased security. For a long-term investor, cold wallets are preferable.

Instead of using a wallet, you could put your funds in the custody of a financial organisation, such as Cabital, regardless of whether you’re a short or long term investor. This way, you will also be able to earn a constant stream of interest on your holdings through different programs that such institutions offer while enjoying industry-standard security on your assets. Check out the options offered by Cabital here.

How Do I Invest in Cryptocurrency?

Most investment options for crypto come down to the following:

  • Centralised or decentralised cryptocurrency exchanges
  • Savings/lending-related plans

Working with exchanges is suitable for short-term investment and daily trading. For long-term investors, a more reasonable option would be to earn interest on your cryptocurrency with savings plans, like those offered by Cabital.

Such crypto interest accounts allow you to earn interest pretty much like a bank earns interest on lending funds to others. In this case, your savings deposit will be used by a trusted party, like Cabital, to earn interest with minimised risks. Still, crypto market conditions allow for a bigger APY than traditional banks can offer: while a typical APY of a bank’s savings plan is around 1 to 2 per cent at its highest, Cabital can offer up to 12% APY on USDT. 

Comparison between crypto and traditional interest accounts
Table 2. Comparison between crypto and traditional interest accounts

Ready to invest in cryptocurrency? Open a crypto interest account with Cabital today and enjoy the difference.

This article has been prepared by Cabital Fintech (LT) UAB  (the “Company”) and is general background information about some of the Company’s activities at the date of this presentation.

This article does not contain all the information that is or may be material to you and should not be considered as advice or a recommendation to you in respect of the holding, purchasing or selling of digital assets and does not take into account your particular objectives, financial situation or needs. This article has been made to you solely for information purposes. This presentation may be amended and supplemented as the Company sees fit, may not be relied upon for the purpose of entering into any transaction and should not be construed as, nor be relied on in connection with, any offer or invitation to purchase or subscribe for, underwrite or otherwise acquire, hold or dispose of any digital assets, and shall not be regarded as a recommendation in relation to any such transaction whatsoever. The contents of this presentation should not be considered to be legal, tax, investment or other advice, and you  should consult with your own counsel and advisers as to all legal, tax, regulatory, financial and related matters concerning an investment in or a disposal of such digital assets and as to their suitability for you.

This presentation and its contents are proprietary to the Company, and no part of it or its subject matter may be reproduced, redistributed, passed on, or the contents otherwise divulged, directly or indirectly, to any other person (excluding the relevant person’s professional advisers) or published in whole or in part for any purpose without the prior written consent of the Company.

This article contains forward‐looking statements. Such forward‐looking statements involve known and unknown risks, uncertainties and other important factors. Certain forward‐looking statements are based on assumptions or future events which may not prove to be accurate, and no reliance whatsoever should be placed on any forward-looking statements in this article.

The information in this article has not been independently verified. No representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the presentation and the information contained herein and no reliance should be placed on it. Information in this article (including market data and statistical information) has been obtained from various sources (including third party sources) and the Company does not guarantee the accuracy or completeness of such information.