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Managing Enormous Risk: Bitcoin and Altcoin Investment Strategies

While some have made millions investing in digital currencies, others would call it degenerate gambling. If you’re reading this, then you know how exciting and unpredictable the crypto world is. Fortunes are built and demolished in seconds, new and exciting technology pops up every day, and controversy rules the land. It’s pretty much the Wild West of finance.

The unprecedented growth of cryptocurrencies has attracted investors from all walks of life, many of whom have been enticed by the staggering returns made by early investors. If this sounds like you, then keep reading. Unfortunately, we’re not going to teach you how to get rich in a few days; in fact, we’re going to try and deter you from that objective.

Not that we don’t want you to be super-rich, don’t get us wrong. But we prefer to have more grounded goals and we want you to do the same. Investment is a tricky game and the patient person usually wins. Avoiding “fear of missing out” (FOMO) is essential, especially in crypto, where disinformation, fake news and drama are commonplace.

So what exactly is the point of this article, you may wonder? Well, today, we want to give new players in the cryptosphere some ideas on how they can begin to navigate the tricky world of investment. We feel this is important due to the growing amount of scams and low quality projects out there.

We’re not saying that the strategies we discuss are foolproof or even profitable. They are not based on any mathematical formula nor were they devised by any experienced investment professional. These are simple ideas that are popular among entrants and old school digital currency investors alike.

It’s important to note that this article is not to be taken as investment advice and that you should always remember the golden rule of investment: Never invest more than what you can afford to lose.

Diversify and play it safe

This is a simple one. If your portfolio only has one coin on it, you’re doing it wrong. Now, we know some people will say Bitcoin is the only cryptocurrency you should own, but at this point  it’s safe to say that this is an absurd statement founded on feelings and ideals, rather than actual facts.

Bitcoin is thriving because it is the first and most popular cryptocurrency out there. It has the first mover advantage and it is also backed by an extensive network of miners who keep it safe. In terms of technology or features, however, Bitcoin falls short of its peers. We’re not saying you shouldn’t have Bitcoin, but you should also acknowledge other cryptocurrencies out there.

It may be a good idea to play it safe, however, and to “bet” on the most popular coins only, such as the top 10 by market capitalization. At present, those are: Bitcoin, Ethereum, Ripple, Bitcoin Cash, Litecoin, Dash, NEM, NEO, BitConnect and Monero.

Bet on the idea, not the project

The world of Blockchain technology has evolved to a point where currency is just one of the many functions a cryptocurrency can have. There are smart contract platforms like Ethereum, NEO and Qtum, there are decentralized storage networks like Storj, Sia Coin and Filecoin and there are decentralized exchange platforms like Waves, Bitshares and others.

Our suggestion is, instead of buying one cryptocurrency in each category, you should spread your investment throughout multiple options inside each category. This will allow you to reduce the risk of investing in one single currency. In the world of crypto, a technical difficulty or even a grievance within one of the teams can lead to an rapid crash in the price, regardless of how promising the project and tech are. Just look at what happened with Tezos.

Hedging

Again, diversification is the name of the game. If you’re in crypto, then you are probably aware of how risky it all is. The cryptocurrency movement could end in days if some major security flaw was discovered or if all governments decided to ban them. The same can happen if some new and improved alternative to Blockchain technology comes along. These are, of course, worse case scenarios that are unlikely but possible nonetheless.

So, if you’re not one to have all your eggs in the same basket, you may want to extend your investment strategy to instruments outside of crypto. Precious metals, stocks, and other traditional investment vehicles may be a great addition to your portfolio and will allow you to reduce the risk you would take by investing in cryptocurrencies only.

Some companies, for example, manage cryptocurrency investment funds that combine cryptocurrency investments with investments in other sectors, like real estate. We talked to Kirill Bensonoff, CEO and founder of Caviar, about the importance of heeding your investment in the cryptocurrency space with traditional instruments.

He stated:

“We found a couple of major issues with crypto-asset investing, namely, it’s difficult and time consuming, and all assets are highly correlated. There is no ‘safety’ asset that also produces an income. We also see a movement towards having crypto be backed by traditional assets, such as gold, real estate and others, and we are addressing this head on.”

Liquidity, liquidity, liquidity

This is something that many new players forget about. You may find yourself investing in a cryptocurrency, having it increase in value several times over, only to realise that you can’t really sell it. If you try to sell large amounts at once, you’ll crash the price. Why? Because there is no liquidity. If a coin has no trading volume, significant price swings are bound to happen.

You can play it safe and avoid low volume coins all together but if you don’t want to, the least you can do is to know the risk you’re taking. CryptoCompare has a portfolio tool that allows you to analyse several risk factors in your portfolio, including volatility, exposure and, of course, liquidity. Their tool allows you to get an estimate of how long it would take to sell a certain coin based on the current volume. We asked Charles Hayter, CEO of CryptoCompare, why this tool is important for entrant users. He stated:

“We want to make it easy for users to track how well they’re doing. Crypto is risky in the extreme and we want to help people understand where these risks lie and how to quantify them.”

Room to grow

Remember what we just told you about liquidity? Well, this strategy is somewhat contradictory, but it’s important to note that not all of these strategies are compatible with one another. Also, some involve more risk than others, and this one is risky. So, what do we mean with “room to grow”?

Small market cap cryptocurrencies have more growth potential than the ones at the top. Of course, other factors will determine if the price will rise or not but the idea is that, if you invest in cryptocurrencies before they are big, you may get to see your investment grow several times over.

Now, before you go to the nearest exchange and start stacking up on useless meme coins, have a think about what you want to buy. Then, perform your due diligence, check the roadmap, check the team, read the whitepaper, learn about the technology. Do everything in your power to ensure that your investment is justified. This will also make it easier for you to stick to your strategy, knowing that you are invested in something you believe in.

Technical analysis

Yes, chart wizardry. To be honest, I have no idea how it works and I admire anyone that does. All those numbers and lines give me headaches. Nevertheless, if you have it in you, learning T.A. can do wonders for your investment strategy even if you only touch the surface! We asked Jonathan Hobbs, CFA and author of the Stop Saving Start Investing: Ten Simple Rules for Effectively Investing in Funds investment book how technical analysis can be useful even for a newbie investor. He stated:

“Any good investment strategy needs rules. Technical Analysis (or “TA”) uses rules to look for price and volume patterns in charts to try and predict what’s going to happen next. It helps investors choose when to buy or sell. One example of TA is the Simple Moving Average (or “SMA”). The 50-day SMA, for instance, is the average price over the last 50 days, which changes or ‘moves’ each day. When an investment starts trading above its SMA, this is could be a bullish sign. Since TA can also protect the downside, it’s a good risk management tool for volatile investments like cryptocurrencies.”

Proof of Stake interest

A lot of people would love to invest in cryptocurrency mining, but at this point, you either go big or go home. Mining has become an industrialized practice reserved only for those with large financial backing, high tech equipment and access to low energy prices. Although there are several alternatives to traditional mining, Proof of Stake is the most relevant one for the subject at hand.

To put it simply, Proof of Stake allows users to “mine” coins without mining equipment. In this system, the amount of coins a user holds will determine how many coins he mines. Although most PoS cryptocurrencies will require you to leave your wallet running, some implementations of PoS like Waves and Lisk allow you to earn interest by leasing or delegating your stake.

Do note that you shouldn’t go out and buy every PoS coin out there. You should, however, check your holdings for these types of coins and, if you have them, mine them! In the worst case scenario, you’ll need to leave the wallet running which can be done with any laptop or even a Raspberry Pi device.

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Blockchain: Best Thing For Gaming Since Invention of Internet

If you check out pricing websites like CryptoCompare or CoinMarketcap, you’ll see hundreds of cryptocurrencies. As you may imagine, not all of these are focused on being an alternative currency or payment system. From smart contract platforms like Ethereum to fiat-backed assets like the Tether (USDT), alternative cryptocurrencies can take many forms and serve a multitude of purposes.

Some Blockchain projects and their respective coins have been created to fill certain niches while others are obviously unnecessary and borderline fraudulent. There are a number of different areas in which the use of Blockchain-based technologies and tokens can have a noticeable impact. The online gaming industry is one of these.

Not only are the tech and gaming communities tightly connected, but Blockchain technology is also able to create new features and possibilities for games, gamers and fans, allowing them to connect, compete, collaborate, and negotiate directly to unlock new revenue sources in a $109 bln market. In short, Blockchain tech has become a game changer (pun intended).

Tokenization of In-Game Money & Items

If you’re a gamer, then you probably know how good it feels to finally get that item you’ve been looking for or how rewarding it can be to have large holdings of a certain in-game currency. Gamers put in hours and hours of work and, in a sense, it’s rewarding to see your effort pay off.

There is, however, an unbalance in the gaming industry in which our real-life achievements (money and time) can be used to benefit our in-game experience but our in-game achievements only exist within the game itself and, when it’s all said and done, it is as if they do not exist at all. The desire to tip the scale is there and it can be noted in the secondary markets that have popped up over time. It has become common practice for gamers to set up trades in which they exchange items or in-game currency for cash. However, these secondary markets have a lot of issues, including inflated prices and frequent scams.

Blockchain technology can change this in a simple manner. By turning in-game items and currency into unique crypto assets these can suddenly be owned just like real-life objects are.

Let’s start with one of the pioneers in this field, Spells of Genesis. This is a card game based on Blockchain technology, both in its infrastructure and storyline. Blockchain technology is used to tokenize trading cards, allowing these to be transferred directly on the Blockchain. Since the game was created with this functionality in mind, the user’s wallet is integrated, allowing the game to automatically track the transactions and ownership of cards/assets.

Although Spells of Genesis has set the foundation for the tokenization of in-game items, other projects like Dmarket are taking it one step further by incorporating existing games and allowing their respective items to be transferred just like the cards in the Spells of Genesis game, opening up a new world of possibilities for gamers.

DMarket is currently building the first decentralized marketplace for in-game items with the help of Blockchain and smart contract technologies. So, how does it work? By tokenizing in-game items on an immutable Blockchain, DMarket ensures that the item token can be freely transferred without any middleman and that it cannot be forged.

Tokens that represent an item can then be sold on the Dmarket exchange. Once an order has been matched, the Dmarket smart contract system is able to ensure that payment is only processed once the item has been correctly transferred to the buyer’s account. This is done with the help of an API that is able to track ownership changes in various games. The whitepaper explains:

“For trading operations in the system, the user will have to specify his credentials to enter a game. After that, the system will automatically synchronize the user’s game items with their personal cabinet on the trading platform. This synchronization will be completed via API, using the user’s game credentials. A synchronization of objects with the tradable property will be held between the Blockchain and the marketplace with the subsequent display of these items in the user’s cabinet.”

DMarket is able to open a new world of possibilities for gamers who want to monetize their efforts and even for casual players who may want to start playing a new game without having to leave a bunch of hard-earned items/currency behind.

Game monetization and platform gamification

The gaming scene has come a long way since the 1970s classic game “Pong”. Today, there is no shortage of cool games out there, so it can be hard for developers and publishers to stand out and to monetize their games efficiently. Blockchain technology can help them set up revenue sources quickly and effectively, skipping the usual bureaucracy and the middlemen’s fees/delays.

Enjin, a gaming community creation platform launched in 2009, is currently building a Blockchain-centric ecosystem where developers will have access to a complete set of tools to allow them to kickstart their game monetization plans quickly and effectively, while also benefiting gamers and community leaders.

Much like DMarket, the Enjin ecosystem will use tokenization to allow in-game items and currencies to be owned by the user himself. However, the process is completely different. Game developers can “mint” virtual goods and currencies by locking up ENJ coins in a mint smart contract. These can then be transferred in and outside of the game and users can always destroy the token and recover the original ENJ that was locked in order to mint it, ensuring liquidity.

Tokenized items, cash, and privileges give developers a simple way to monetize their games, as these tokens can be sold by the game developers and they can even be traded on an ERC20-enabled exchange like EtherDelta. Developers and community leaders can even create time-limited and subscription-based virtual goods, allowing them to provide services like “power-ups, ranks, or ​unlock ​website ​content ​for subscribed ​users.”

Enjin also provides developers with the necessary tools to create a decentralized payment gateway quickly, allowing them to accept cryptocurrencies and Enjin-based coins and to implement features like ​carts, ​web ​invoices, email/SMS ​notifications, ​refunds ​and ​more.

eSports Economy and Trustless Betting

eSports are growing at an incredible rate, and, according to newzoo, the eSports economy will grow to $696 million and reach more than 380 million people by the end of the year. However, as a new industry arises, new problems arise with it. Lack of transparency and efficiency in the eSports betting industry has led to the creation of decentralized eSports platforms like FirstBlood and Skrilla, in which betting does not require a third-party entity.

In these platforms, the funds being gambled are held in smart contracts until the match ends, eliminating the need for an escrow agent. In FirstBlood, token holders are rewarded for inputting the results of the match into the smart contract, ensuring that the system cannot be rigged by a corrupt operator.

While the aforementioned projects are looking out for the betters, the DreamTeam project is focusing on bringing gamers together, leveraging Blockchain technology to build the first-ever eSports and gaming recruitment and management network. DreamTeam uses the DDT cryptocurrency token as the sole currency of the platform, leveraging smart contract technology to ensure trustless payments of player salaries and bonuses, sponsorship payments and prize money payouts.

Payment method

This one is a bit obvious but we couldn’t really leave it out, could we? With their ability to cut out unnecessary middlemen and increase privacy and control for the user, cryptocurrencies and gaming just go along perfectly. In 2016, Valve realized this and added Bitcoin payments to its platform with the help of the Bitcoin-based payment service, BitPay.

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Japan Becomes Largest Bitcoin Market as Traders Leave China

Japan has once again become the largest Bitcoin exchange market with 50.75 percent market share of the global Bitcoin exchange market. Analysts including BitFury Vice Chairman George Kikvadze attributed the surge in the trading volume of the Japanese Bitcoin exchange market to the exit of Bitcoin traders in China.

Earlier this week, the Chinese government, local authorities and financial regulators officially requested Chinese Bitcoin exchanges and trading platforms to halt their services by the end of September. OKCoin and Huobi, the two largest exchanges in China, were granted leeway to operate until Oct. 30, considering the fact that they have not been involved in any initial coin offerings (ICOs) in the past.

But, it seems as if traders are not willing to take any chances with the Chinese government and their unpredictable nature. The Chinese Bitcoin exchange market’s daily trading volume has halved within a period of three days, from 15 percent to less than seven percent.

According to various trusted Bitcoin market data providers such as CryptoCompare, China only accounts for 6.4 percent of global Bitcoin trades at the time of reporting.

US market benefits

Prior to the nationwide Bitcoin exchange ban by China, the US exchange market had consistently secured its position as the largest market in the world.

However, almost immediately after the announcement of the country’s three largest Bitcoin exchanges, BTCC, Huobi and OKCoin, were released, traders moved over to the Japanese Bitcoin exchange market. The abrupt migration of traders led to the short-term surge in the trading volume of Japan, allowing the market to overtake the US by over 20 percent in global Bitcoin exchange market share.

Contrary to many negative reports, prominent developers, analysts, researchers and experts within the cryptocurrency and Blockchain sectors including Litecoin creator Charlie Lee and billionaire investor Tim Draper expressed their optimism toward the shutdown of the Chinese Bitcoin exchange market. Lee emphasized that the Chinese government will no longer be able to manipulate the market, as it had done since 2013.

Lee says:

“This is a good thing. China can no longer play with the markets by banning Bitcoin. Cryptocurrency cannot be killed by any country. One solution to centralized exchanges is decentralized ones. I hear the Decred Project team has something cooking that helps with that.”

Bitcoin stabilization

As Lee emphasized, the exit of the Chinese Bitcoin exchange market should really only have affected around 10 to 15 percent of traders in the global Bitcoin exchange market. Yet, speculators and impatient traders initiated a major sell-off as the Chinese government banned exchanges, leading to a major correction on Bitcoin price.

Over the next few weeks, the global Bitcoin exchange market will stabilize, as traders move from the Chinese market to South Korea and Japan, two markets that have developed significantly more efficient regulations, industry standards and policies for both cryptocurrency exchanges and users.

It is likely that as Lee and Draper noted, the closure of the Chinese Bitcoin exchange market could lead to the stabilization of the global Bitcoin exchange market, which may be beneficial for Bitcoin in the long run.