Cryptocurrencies are considered (reasonably) the most dynamically growing and profitable assets in 2020-2021. But when investing in them, it is necessary to understand and be aware of the risks inherent in this type of asset. Many coins on the market are subject to pump & dump schemes, trading manipulations, and massive sales (for example, from large mining pools), and this can significantly affect the price of assets.
Therefore, it is necessary to take a responsible attitude to the choice of partners and trading platforms in order not only to preserve but also to increase capital. Let’s find out what cryptocurrency investment schemes are the most common and available on the market today.
The review of basic investment strategies in the digital asset market (crypto market)
We will consider 3 basic strategies: BUY & HOLD, active trading with your assets, and API Management using a management company.
Each of these methods has its pros and cons. It is impossible to say for sure that some of this cannot be used, and something must necessarily be in the arsenal of the investor.
1.Strategy BUY & HOLD
An investor buys cryptocurrency on his own (through a wallet, exchanger, OTC market, etc.), stores it, and expects the rate to rise in some period of several years. Also, this option is called passive investment, where the trader invests his money in an asset for a long time on a “buy and forget” basis. The advantage of this option is the minimum amount of time and “moves” of the investor, but there are more than enough disadvantages and risks here.
First, when buying any asset, you need to trust the seller. He must have a positive and crystal-clear reputation. Wallets and custodians of assets may unexpectedly stop their activities or leave the market, the exchange, after receiving your fiat money, may simply not send the cryptocurrency to the wallet, and when conducting an OTC transaction, they may sell “dirty” cryptocurrency.
These risks can be excluded if the trader wants to invest through the ETF’s. But the other side of this story always remains – fixed costs or management fees.
Secondly, the strategy of long-term passive storage of an asset will not always allow increasing capital. It is difficult for an investor to determine at what phase of the market he must purchase an asset. In an unfortunate combination of circumstances, you can freeze your assets for more than one year, or go into a drawdown and never return from it. For example, during 2017, bitcoin rose in price from less than one thousand dollars to almost $20,000 but then fell for two years, reaching local lows of its price at $3,150 in December 2018 and $3,800 in March 2020. We do not think that passive investors who did not sell Bitcoin for $19,000 and waited for the next two years were happy with this situation and the decrease in their capital.
According to statistics, such indicators as standard deviation, the maximum drawdown for passive investing will be several times higher than for active.
The graph shows that the profitability indicators for passive investing are significantly lower than the results obtained when managing assets through the FOBS company, using the API technology (without transferring/allocating the investor’s funds to the management company). The maximum drawdown indicators are also superior to the passive method. All these factors tell for the obvious efficiency in the management of crypto assets of the FOBS company.
2. Trading cryptocurrencies on exchanges (Trading)
In this case, the investor buys cryptocurrency (s) on one or several exchanges and carries out transactions by himself (in fact, becomes a trader). In addition to knowledge, skills, and theoretical techniques of technical and fundamental analysis, this will also require the long-term practical experience of trading on cryptocurrency platforms, which a trader gets only with time. According to statistics, only up to 5-10% of traders can stably and constantly be “in the black”, increasing the balance of their deposit over a long distance. And this percentage of successful traders is typical for all markets (crypto, stock, and Forex). Inexperienced asset traders, unfortunately, run the risk of losing their deposit in the first month (if they are lucky, a year), trying to trade with large leverage in the margin market against the trend or not adhering to a trading strategy, discipline, risk and money management.
Also, such traders should be ready for:
- for the possible unavailability of their assets on centralized exchanges at times of peak loads with a sudden change in trend (many TOP trading platforms often practice sudden maintenance work at such moments);
- for failures when placing orders (for the same reason indicated above);
- for a delay in the execution of orders and withdrawal operations;
- for a sudden increase of commissions for the withdrawal of assets with a large load of their blockchain (mem-pool);
- for the hacking of exchanges, theft of their funds or exit-scams of trading platforms;
- for blocking an account by the decision of the exchange or according to the requirement of the regulator or law enforcement agencies, etc.
Today, the market is replete with offers from many companies and individual “practicing” traders who promise to open crypto trading profitable strategies. They promise to show their audience the “golden mountains” in a short time, and the way to profitable deals with a large number of zeros. But only after passing their paid training with a high price tag.
Unfortunately, in most cases, such courses are carried not by practicing traders or hedge funds with a long history, but by ordinary businessmen, who are usually called info-gypsies. For the received (as a rule, very considerable) money, they drive students through the template course of trading, acquainting them only the basics of asset trading and then leaving them face to face with the market. It is great wisdom: who knows how to work – does, and who does not know how to work – teaches. Unfortunately, even the highest price tag of such courses does not guarantee that you will receive all the necessary skills, knowledge, and even less an understanding of all the nuances and subtleties of the functioning of the crypto market. Such understanding, as we mentioned above, will come only with experience – after a huge number of concluded deals, often accompanied by large drawdowns or even liquidations of the deposit. Here the investor needs to think about does he needs such experience or not?!
3. API Management or trust management (DM) of assets on client accounts
Suppose that the investor does not have a long experience in trading cryptocurrencies. But at the same time, he has a desire to actively and profitably invest in crypto assets in order to consistently make a profit, despite any trend change in the market. In this case, you can consider cooperation with the company under the asset trust management (AMC) scheme.
What the investor gets:
- cooperation with a legal entity with a long history of work that has received a license to operate in a certain jurisdiction;
- safety and personal control of its assets – AMC is only able to conduct trade transactions via API, without having the right to withdraw funds from the investor’s wallets;
- no management fees – using API Management, the company does not charge a commission for asset portfolio management, unlike most competitors;
- a motivated partner as AMC, because the company earns only when its client earns. The income of the company’s traders directly depends on the number of successful transactions and the investor’s profit. Therefore, they are most interested in the positive end result of their deals.
One of these companies is FOBS Asset Management, which is ready to increase the capital of its investors thanks to the competencies accumulated over many years, the availability of a set of strategies and tactics, trading systems, and various tools in the area of trading and digital asset management.
Using trading algorithms from FOBS Asset Management, an investor gets the opportunity to invest not in one asset with one trading strategy, but in a wide pool of the most liquid and profitable assets on the crypto market (at least 15 instruments, each of which has up to 15 strategies). Trading is carried out on the largest trading platforms in the world, such as Binance, Huobi, Coinbase, Bitstamp, etc. All these nuances allow the company to provide a high return on its clients’ investment portfolio (ROI), even taking into account all possible risks and despite the frequent trend change.
Also, the API technology allows you to make trading operations on your behalf, without transferring your funds to the management company.
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