Continuing in our series for those new to the Cryptocurrency market. In the previous section [START01], we discussed the importance of having the right mindset and psychology in Crypto investing. Today’s topic is Capital Management.
In reality, most cryptocurrency investors enter the market without a clear capital management plan. Many may concentrate all their funds into a single promising coin project or invest in top coins, hoping to “ride the wave” or take advantage of FOMO-driven price boosts. Especially during Uptrends, they may pour in capital to chase market waves.
As a result, during a Downtrend, with extreme volatility affecting coin prices, many investors end up cutting losses when they can’t handle the price drop pressures. Some exit the market entirely, while others close their accounts and walk away, often after seeing their capital reduced by tens or even hundreds of times.
The lack of an initial capital management plan when entering the market leaves investors without direction in the face of severe market fluctuations, leading to poor decisions and, ultimately, the complete loss of investment capital.
STRATEGY FOR SMART CAPITAL ALLOCATION
There are various strategies for capital allocation. Below are some recommended approaches:
Allocation by Short-Term, Medium-Term, and Long-Term Goals
Allocate your capital across Short-Term, Medium-Term, and Long-Term goals at a ratio of 20-30-50. It’s essential to keep the majority of your capital in long-term investments, as these offer the best returns in this market. Focus on the future, long-term vision, and advancements in Blockchain technology.
Allocation by Short, Medium, and Long-Term Goals
Long-Term
Long-term investments have a horizon of 3-5 years. This means you should ensure that capital allocated for long-term is idle, not needed for the next 3-5 years.
Long-term investments should focus on top coins like Bitcoin, Ethereum, Ripple, or newer coins with solid information backing their future potential.
Some key points for long-term investment:
- Stick to your 3-5 year investment plan; don’t sell at a loss during market dips
- Buy more (within your capital capacity) when prices drop
- Avoid cashing out “early” before reaching your target price (advanced articles will cover how to set price targets)
Medium-Term
Medium-term investments are similar to long-term in concept but span from 6 months to 2 years. Suitable coins for medium-term investing include top coins or new projects with uncertain future directions (given the high turnover in this market).
Short-Term
Short-term investing, or “swing trading,” relies heavily on technical analysis for quick trades. This approach carries significant risk, especially for newcomers. Due to the high volatility, short-term investing can greatly impact investors’ psychology, leading to poor decisions and inevitable losses. However, with sufficient market experience and strong skills in technical and fundamental analysis, “swing trading” can still yield decent profits.
Allocation by Potential Coins and Top Coins
Potential coins are new with high growth prospects, offering a chance for multiplied returns but also high risk. Top coins are established and have proven value, offering lower risk but generally lower returns.
You should use Medium- and Long-Term funds to invest in both top coins and potential coins, favoring top coins at a 60-40 or 70-30 ratio, depending on your strategic direction.
These are some basic suggestions for capital management for beginners. You can build your strategy to suit your preferences, but always remember: “Medium and Long-Term investments yield the best returns.”
Some Key Tips for Capital Management
Start with Capital You Can Afford
Allocate an amount that fits comfortably within your financial means—a portion of your accumulated savings. Avoid going “ALL IN” with your capital, and absolutely avoid borrowing to invest in this market. Starting with a smaller investment allows you to get familiar with the market and helps reduce risks from inexperience.
In the cryptocurrency market, you can start with as little as a few hundred thousand VND, a few million, or even tens of millions. So don’t worry about needing a large amount to begin. With smart investment strategies, you can grow your capital gradually.
Build and Increase Your Capital Over Time
Continue working in your primary field, while setting aside a monthly investment for this market. Behind cryptocurrency lies the ever-evolving Blockchain technology, with newer generations of Blockchain and tokens that continuously improve upon previous iterations. This market will keep developing and refining in the future.
Increasing your capital over time should align with your growing knowledge of the market. As you build your understanding, you can enhance your profits. Thus, investing time in learning the market is essential to becoming proficient. Once you have this mastery, you’ll be able to protect and grow your assets.
Avoid Going “ALL IN” on a Single Coin
With such a high-risk, high-reward market, focusing all your funds on one coin could lead to a complete capital loss. Spread your investments across several coins to reduce the risk of losing all your capital.
These are some capital management tips drawn from the experience of many seasoned investors. You can adopt these strategies or create a plan that suits you even better. But remember, never invest in the cryptocurrency market without a solid capital management strategy.
Next article [START003]: What is Blockchain? How Do Coins and Tokens Differ?
