Investing against the crowd makes you a contrarian crypto investor. This means when other crypto investors are selling their positions, you are busy buying. However, you don’t just buy because others are selling. You must carefully research before investing. This guide discusses everything about contrarian crypto investing.
Contrarian Crypto Investor Defined
As stated, contrarian crypto investors trade against market trends. They believe many investors say the market will trend up only after they’re fully invested and lack further buying power. For contrarian investors, the market is in the sell zone at that point, so they place sell orders. Similarly, when others anticipate a downtrend, contrarian crypto investors assume those investors have sold out and that the cryptocurrency market can only trend upwards from there, so they place buy orders.
Contrarian Crypto Investors Outperform Average Investors
Although highly risky, contrarian crypto investing can be extremely effective. In fact, people using this strategy tend to perform better than average investors. That’s because an average investor is usually keen on the short-term performance of a crypto asset rather than the long-term.
A recent study conducted by JP Morgan discovered that most average investors buy overperforming cryptocurrencies and sell underperforming ones. Although this may sound good, it is not an effective investment strategy. In most cases, such investors end up buying high and selling low, putting themselves into losses.
On the other hand, contrarian crypto investors operate differently: buying low and selling high.
Does Contrarian Crypto Investing Guarantee Gains?
No! Being a high-risk investment strategy, contrarian crypto investing can lead to massive losses. That’s because betting against the majority of investors cannot always go your way.
Is Value Investing a Good Contrarian Strategy?
Have you ever heard of value investing? If not, it involves seeing value where other investors don’t. That means investing in a crypto project that you’re optimistic will succeed in the future despite others selling their positions.
For instance, during the bear market in 2022, most crypto companies were affected significantly. Some collapsed, while others survived and reached new heights this year. That said, value crypto investors who identified those winning firms during the market downturn and injected funds are probably in profits today.
Successful Contrarian Crypto Investors Inject Money Into What They Know
To become an effective contrarian crypto investor, you need to invest your money in what you know. For example, if you work in the Artificial Intelligence sector, there is a likelihood you understand better than an average investor how the technology can revolutionize the crypto industry over the coming years. Therefore, using that knowledge, you can buy AI-based crypto tokens and invest in AI companies looking to solve problems in the blockchain industry.
Similarly, injecting your hard-earned money into what you do not know can bring you problems. Let’s say the majority of investors are buying a particular token because they feel the crypto project is the next big thing. You follow the market trend and purchase the crypto asset without reading the project’s roadmap. Little do you know that the token is overvalued and may start selling anytime, thus putting you in the “buy high, sell low” situation.
Balance Your Crypto Portfolio Using Contrarian Investing Strategy
As a contrarian crypto investor, always identify and sell the overvalued crypto assets in your portfolio. After doing so, you can use some of the profits to buy undervalued tokens. That way, you are balancing your crypto portfolio by maximizing gains while shielding yourself against losses.
It is worth mentioning that you may not realize the results of this contrarian strategy in the short term, but potential gains in the long term are huge.
Tips for Contrarian Crypto Investing
Pick crypto projects with real-world use cases: Investing only in crypto assets that have utility is essential because they are likely to survive during a market downturn, allowing you to buy the dip.
Diversify: Like other investors, contrarian crypto investors must also prioritize diversifying their portfolios.
Many consider contrarian crypto investors stupid because they trade against the market trend. However, contrarian investing can be an effective strategy with proper research and knowledge.
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