Two Easy Strategies for Investing in Cryptocurrency
Cryptocurrencies are a new class of digital assets based on blockchain technology. As with any new asset class, thereʼs profit to be made – but, the significant difference between crypto and previous asset classes is that with it, thereʼs a wide variety of profit-making strategies to employ.
However, two proven methods for new investors to get in the market are:
- investing in ICOs and
- using MultiToken for arbitrage trading.
Perhaps no other facet of cryptocurrency markets so captivates media attention and dollar speculators as Initial Coin Offerings (ICOs). Providing profit far beyond the wildest dreams of any investor, ICOs, especially in 2017, dealt returns as high as 4,500%, as was the case for Komodo (KMD).
Investing in ICOs works by sending BTC, ETH, or in some cases USD, to the ICO smart contract. Once the projectʼs funding upper limit (called a hard cap) is reached, the ICO closes, and the raise is considered a success.
When an ICO hits its hard cap, its usually viewed as a strong contender for good returns upon the tokenʼs release on the market. There are many factors to consider, however.
The exchanges that list a token play a massive role in its liquidity, status, and desirability in its early stages on the market. The tokenʼs metrics are often overlooked by buyers in the early phases of an ICO, leading to quick disillusionment later on if those same buyers suddenly find them unfavorable.
Despite the infinite possibility that an ICOʼs fortune may reverse, the strongest advantage of investing in them is the fact that investors can get into a project at its earliest (and hopefully lowest) price.
When investing in ICOs, the risk-reward ratio is favorable if the investor doesnʼt risk an outsized position.
Monetizing Your MultiToken With Arbitrage
Another safe strategy for generating a cryptocurrency profit is using your MultiToken to make a passive income using arbitrage.
What is arbitrage, you ask?
Arbitrage is the act of taking advantage of price differences for the same asset in different markets. Letʼs suppose that ETH is $220 on GDAX but, because of the kimchi premium in Korean markets, is $232 on Upbit. An arbitrageur will buy cheap ETH on GDAX, and sell it higher on Upbit, profiting $12 (less than the exchange fees) for each ETH traded.
Now, you may be wondering how this relates to your MultiToken, and, even more so, how it relates to you turning a profit. Let us explain.
MultiTokens are portfolios composed of one or more digital assets. Letʼs imagine a MultiToken containing ETH and BTC. To keep the portfolio balanced and profit-earning in the process, your MultiTokenʼs smart contract will automatically rebalance the assets anytime they fall out of bounds of their designated proportions.
The way this looks in practice is:
- You want to maintain a 50/50 split between ETH and BTC.
- BTC pumps while ETH dumps, leaving your portfolio weighed heavily in BTCʼs favor.
- Your MultiTokenʼs smart contract initiates an automatic-rebalancing event to bring your portfolio back into proportion by signaling for an arbitrageur to come in and swap more expensive tokens for cheaper ones.
In this scenario, your MultiToken earns profits in two ways:
- By keeping your portfolio balanced despite changes in the assetsʼ values, you increase profit.
- The more MTK you hold in your MultiToken, the higher the chance that arbitrageurs in exchanges will use your MultiToken. Every time your MultiToken is used for an exchange, you earn a reward.
Investing in cryptocurrency with MultiToken exposes you to much less risk than other avenues and allows you to invest like the pros.
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