In financial markets, as in a game of chess, strategy is the key to winning. Thinking a few steps ahead and having a plan in place helps to avoid mistakes that could result in large losses. The reward, on the other hand, will depend on the level of risk aversion of the trader.
3 types of investors
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An aggressive investor pursues the maximum return, receding the quality of assets into the background. He is not afraid to act, taking additional risks to ensure higher profits. Apart from using high levels of leverage, aggressive investors do not disdain derivatives, precisely futures.
As for cryptocurrency markets, any altcoin could be used as a speculative instrument.
One of the riskiest forms of investment would be following the pump-and-dump schemes in so-called "shitcoins" that inevitably trend toward zero.
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Passive investing is all about increasing the rewards by minimizing the number of trades. One of the most popular strategies in this regard is known as “buy and hold”. The idea is to invest only in those assets that have a future, for example, Bitcoin and Ethereum.
So far this year the price of bitcoin has grown by more than 35%. The new round of risk-on in the markets could trigger a further surge in value. For this to happen, however, the Fed should change its current monetary policy targets or, at least, ease the pace of rate hikes.
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Finally, the conservative investor is one who focuses on low-risk options to minimize potential losses. While it may not generate immediate returns, it can meet the needs of investors looking to diversify their portfolios without exposing themselves to additional risk.
Crypto's Conservative Coins
Due to their volatile nature, most cryptocurrencies do not boast safe-haven properties. As it turned out, even stablecoins are not all stable. According to IMF, most of them fluctuate around their desired value rather than sticking rigidly to it. The free-fall of TerraUSD is a perfect example in this sense. Still, it doesn’t mean the digital industry is not suitable for passive investors.
There are strategies like staking and yield farming that could generate some extra income even during a crypto winter. On the Kraken Platform, for example, one could earn up to 24% yearly on crypto holdings. The bad news is that the receipt of a new digital asset as a result of staking activities is taxable upon receipt in the US.
What about the NFT?
Digital art mania is losing momentum, to say the least. According to Chainalysis, monthly spending on NFT in November fell by more than 87% to $442 million. The number of active buyers and sellers of NFT, in turn, declined by more than a third compared to the peak values. Declining interest in “digital apes“ is not so much a result of a crypto winter but an obsolete business model.
Fraudsters have just added fuel to the fire. According to some reports, between July 2021 and July 2022, more than $100 million worth of NFT thefts were reported. Either way, the NFT bubble has burst, but there is no question of the technology disappearing. Is it worth investing in a "tool"? Only if you are willing to test the greater fool theory on yourself.
Final remarks
As is the case with "traditional assets", the cryptocurrency market offers a set of opportunities for all types of investors. Which strategy to choose depends on the level of risk one is willing to take and the goals one is pursuing. Considering the current market conditions, however, the passive approach looks more favorable.