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The primary investment strategy for retail investors is a belief that the price of Bitcoin or Ethereum will go up over time. Investing in Bitcoin is essentially a strategy to invest in an asset with characteristics similar to gold, which offers a store of value as well as diversification. Investing in Ethereum is more a play on investing in blockchain technology. Here investors simply subscribe to a mobile app, purchase their crypto and hope the price goes in the right direction.
If you want to spread your risk, you could use a mobile app to invest in an ETF type fund that bundles the top performing cryptos. These are quite commonplace with allocations beyond the ubiquitous Bitcoin and Ethereum into altcoins and stable coins. These are particularly effective if you want a concentrated cryptocurrency position, but don’t know how to trade the markets, so elect to diversify your allocation somewhat.
More experienced and technically minded investors perform arbitrage trades, where they look for price inefficiencies between currencies and exchanges and trade in and out to make a profit. This type of trading is best left to experienced investors with technology backgrounds, many of whom use high frequency bots that perform algorithmic trading, which comes with its own risks. As a result of the South Africa exchange control limits, we can trade crypto assets on behalf of our clients using their R11m annual offshore allowance to generate a return of 3-5% over 2 months. By design our clients are never exposed to Bitcoin, their investment generates daily returns determined by the premium and exchange rate at the time.
We have recently seen an increase in staking. This is crypto-speak for earning interest on your underlying digital asset. Investors are essentially lending money to credible exchanges that support crypto traders who want to borrow digital and fiat currencies to express their views on the market, by taking both long and short leveraged positions. A careful due diligence should be completed before committing to any crypto- lending and staking solutions.
Some crypto assets invest in DeFi (Decentralised Finance), which is enabled through the blockchain, primarily on Ethereum and opens up all manner of disruptive financial services. This is a particularly interesting space and gaining traction exponentially.
Lastly, for the more sophisticated investors, there are around 500 crypto funds. There are about 150 long only fund of funds and 50 crypto hedge fund of funds that invest in multiple crypto firms and strategies to reduce risk by capturing most of the upside and reducing the volatility significantly.
Article written by Andrew Ludwig https://www.linkedin.com/in/andrewjohnludwig/ , Head of Distribution @ CURRENCY HUB https://currencyhub.co.za/and founder of BLACK ONYX https://blackonyx.co.za/ and FUND HUB https://fundhub.co.za/.
Disclaimer: This article does not constitute financial advice. While the author and his firms are regulated by the FSCA, cryptocurrencies are not a regulated investment. Please refer to CURRENCY HUB https://currencyhub.co.za/ a juristic representative of BLACK ONYX (FSP 47701) https://blackonyx.co.za/ for more information.
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