How to Maximize Returns When Investing in Crypto

In the fast-paced world of cryptocurrency, the stakes are high and the rewards can be even higher. But as enticing as the returns may be, the crypto market is a rollercoaster, known for its sharp highs and steep lows. Success here doesn't just depend on luck; it's about smart, informed, and strategic investing. We put together a useful guide to help you navigate this volatile landscape and avoid making beginner mistakes.

Educate Yourself

Let us get straight into the main points of how to maximize returns when investing in crypto. There is a timeless saying: “Knowledge is power” that should be followed at all times. That holds true in all parts of the crypto economy. If you are the first to know a new insight or find a new promising project, you might be positioned to generate some outsized profits. So, there are some essential aspects when educating yourself about crypto:

• Understand Blockchain Technology and how different crypto projects make use of it
• Stay Updated with Industry News by reading on Crypto Twitter or Substacks
• Engage in Online Communities through Discords or NFT projects
• Explore Cryptocurrency Resources like Messari Research or by other on-chain researchers
• Practice with Demo Accounts or mint some Test-ETH to try out the functionality of projects yourself
• Research new tools for trading crypto, for example keep an eye out for new strategies for Candlestick Patterns or any new technical analysis tools
• Attend Conferences and Meetups that seem interesting to you, you will always know more after such a conference 
• Be Cautious of Misinformation and train yourself to spot scammers from miles away, because crypto is full of them 

Actively educating yourself. Gain confidence by participating and making some mistakes with small amounts and acquire a lot of knowledge to be positioned best for the next bull market. Remember, the crypto space is continually evolving, so embrace the mindset of lifelong learning.

Diversify Your Portfolio

Indeed, you can hit the jackpot with one crazy trade and get really, really lucky - but that is different from how you will succeed over the long run. Remember this quote: "It's not about timing the market, but about time in the market". The more often you put all your money on a single trade, the higher the probability you lose your whole portfolio. It does not take much to return from a 5% loss of your portfolio, but it takes a return of 1900% to recover from a 95% loss.

Diversification is key in crypto trading or in trading overall. You must aim to reduce exposure to any single investment. For example you can invest in synthetic assets on chain. These assets replicate alternative assets, such as luxury watches or sneakers. These digital representations offer access to unique markets that were traditionally out of reach for many investors. Obviously you can also trade stocks on chains or also some NFT collections. Overall crypto helps seamless trading across different time zones and eliminates limitations imposed by traditional financial markets. 

Master Risk Management

Stop Losses

Suppose you buy Ethereum for $1,000 each. If you don't want to lose more than $100 if the price drops, you set a "stop-loss" at $900. If the price hits $900, your Ethereum sells automatically. This keeps your losses in check. It's a smart way to handle big price changes. Remember to check and change your stop-loss based on what's happening in the market and what you're okay with risking. 

Position Sizing

1. Decide the most you're okay with losing, like 2% of what you have.
2. Figure out that amount in dollars.
3. Check the difference between your buy price and stop-loss.
4. Divide the dollar amount from step 2 by the price difference from step 3. This tells you how much to buy.
5. Change this amount depending on the market and how much you're okay with risking.

Take Profit Orders

1. Decide the profit you want, like 20%.
2. Calculate the price for that profit. If you bought at $1,000, 20% profit means selling at $1,200.
3. Set a "take-profit" order at $1,200.
4. If the price hits $1,200, it sells automatically, and you make a profit.

Avoid FOMO (Fear Of Missing Out)

The crypto market has always been known for volatility and unpredictability. Some might even argue that crypto needs much more risk management due to the high volatility. These people are probably right. Wild price swings create both opportunities and challenges for investors. 

One of the most important things is to stay calm and avoid FOMO trading. Meaning, just because you heard something somewhere, you should not just invest because you are afraid to miss out on big returns. 

A great example is the case of Three Arrows Capital. It sort of serves as a cautionary tale, where excessive leverage led to significant losses during a period of heightened market FOMO. 

The 2021 frenzy led to many blow ups, even of huge crypto funds that seemed invincible and all-knowing at that time. 

Do yourself a favour, listen to trends, but always do your own research. You can sometimes ride the bull wave, but choose your battles wisely. Know when it’s a real opportunity and when you are a victim of FOMO - your portfolio will thank you. 

Avoid Emotional Decision Making

Traders who stick to their plan usually reach their goals better. This means even if things feel crazy or you're emotional, you stay with your plan.

Being disciplined keeps you safe. Disciplined traders don't make risky choices just because they feel like it.

So, how can traders be more disciplined?

• Know your goals.
• Decide when to buy and sell.
• Know how much risk is okay for you.
• Stick to this plan so you don't make choices just based on feelings.
• Avoid quick, unplanned choices. Stay patient and control your feelings.

Remember: Individuals who cannot master their emotions are ill-suited to profit from the investment process." Benjamin Graham

Use Secure Storage

The collapse of FTX has been one of the worst events in the crypto industry since its inception. Unlike Mt. Gox, FTX was seen as credible and "institutional", and had gained the support of politicians, celebrities, and a large number of users worldwide. History has shown us time and time again that centralized exchanges cannot always be trusted. Sadly, in 2022 alone, According to Anthony Pompliano an estimated 1.5 billion dollars has been lost to hackers across the largest exploits, including the recent 8 million dollar Solana wallet drain. 

"Not Your Keys, Not Your Coins" has been proven time and time again. It's crucial for crypto holders to understand the importance of private key ownership and the consequences of not having full control of their assets. By entrusting a third party with your private keys, you're effectively handing over control of your hard-earned assets and leaving them vulnerable to theft or loss.

Be Wary of Hype and Rumors

Finally, if it appears too good to be true, it probably is. Even though in crypto everything is possible, do not fall for the mistake to FOMO in without any research. Check the project founders and check if it is realistic to actually make 80%+ APY as some crypto projects claim. 

There have been countless crypto scams with celebrities at the forefront and against some like Linsday Lohan and Jake Paul the SEC has actually filed charges. 

All in all, you can see that to maximize returns, you actually need to take a lot of rather defensive measures that would keep you from blowing up your account. If you can keep your discipline, manage risk, your strategies for maximizing returns will surely benefit a lot from it because as we all know, once the next bull run starts it can go up really quickly. 

Author Bio

Alexandra Merrick is a freelance writer with a specialization in artificial intelligence, data science, and cryptocurrencies. Frank’s work reflects his passion for exploring the impact of AI and data science on various industries, as well as breaking down the intricate world of cryptocurrencies for everyday readers.