Table of Contents:
- Is Cryptocurrency a Sufficient Long-Term Investment?
- Choosing Long-term Crypto Investments
- Long-Term Investment Strategies
Is Cryptocurrency a Sufficient Long-Term Investment?
Examining cryptocurrency’s brief history gives insight into whether crypto is a solid long-term investment. Consider Bitcoin and Ethereum, both the most valuable cryptocurrencies in market capitalization. Bitcoin’s value has climbed almost 12,000 percent, whereas Ethereum’s value has surged by more than 92,000 percent.
Indeed, other cryptocurrencies have generated enormous returns in the 13 years since Bitcoin sparked the crypto frenzy. This has resulted in the introduction of hundreds of alternative currencies and the investment of billions of dollars in the field over the years. Does this mean that crypto is a “good” long-term investment? It depends on your perspective on the sector and its future, including the possibility of government regulation.
Several cryptocurrency enthusiasts have embraced the HODL technique. This abbreviation stands for “hold on for dear life,” which alludes to the ferocious volatility of cryptocurrency markets. Bitcoin, for example, has had ten losses of 40% or more in the past decade. The HODL strategy is based on the notion that the asset’s value would return and increase further due to these repeated falls.
Choosing Long-term Crypto Investments
The last thing you want to do with money is a walk-in blind and unprepared. Learn all you can about the industry, currencies, initiatives, and technology. Everyone has heard of someone who invested in cryptocurrencies and got a significant return on investment.
Make no financial decisions you don’t comprehend. Take the time to learn about the project and yourself as an investor.
Know your aim with digital asset investments that match your risk appetite. Choosing the correct digital asset is difficult. The project’s dependability must be considered. Consider the community’s collective faith in the project.
Because Bitcoin and ETH, the native currency of the Ethereum blockchain, account for 60% of the cryptocurrency market, they should be included in your portfolio. They guarantee your portfolio matches the overall bitcoin market.
The balance of the portfolio may be invested in ventures you believe in. This is where “determining your investment style” comes in. Your risk appetite will likely determine your cryptocurrency allocation.
- HODL Tactic
There is no such thing as an ideal portfolio. A diverse portfolio managed by a fearful investor is almost certain to fail, regardless of how carefully the assets were selected.
By 2021, Bitcoin holders would have increased their holdings by 47.35 %, while Ethereum holders would have increased by more than 300%. The essential asset for the HODL method does not require chart reading or market research; the most critical ability is patience. Quality investments are certain to increase in value. While most traders focus on market timing, the investor’s greatest bet is the time! The more time spent on HODL, the greater the benefits.
Long-Term Investment Strategies
- Dollar-cost Averaging: Dollar-cost averaging is a method of investing a fixed dollar amount over a certain time period.
When investing in cryptocurrencies via dollar-cost averaging, the quantity of coins purchased with each investment is determined by the coin’s trading price. Consequently, when a cryptocurrency’s price is high, your periodic investment will purchase less of the coin and vice versa. Given the volatility of many cryptocurrencies, dollar-cost averaging may assist you in avoiding investing your whole portfolio at the peak of the market. While this method may avoid that specific risk, it may also decrease the potential return associated with investing at bargain pricing.
- Staking: Staking is the procedure by which a cryptocurrency investor transfers coins from their digital wallet to the network, utilizing them to verify more transactions. As with dividends, investors who participate in staking might receive perks like more coins or interest. Consequently, staking may be an excellent long-term investment strategy, as it enables you to grow your assets or investment income passively over time. Staking, on the other hand, is only accessible for cryptocurrencies that use a proof-of-stake methodology (as opposed to a proof-of-work model)
- Invest in the dips and HODL: Market timing is one of the most challenging and dangerous investment methods to execute. Nobody genuinely understands how a particular stock, asset class, or industry will do. However, if you can profit from cryptocurrency’s volatility by purchasing cheap, your investment might provide substantial long-term returns.
Invest indirectly with Bitcoin ETFs: In 2021, the first Bitcoin exchange-traded funds were introduced, allowing investors to have exposure to the asset class without actually holding it. While these funds do not own Bitcoin directly, they often trade Bitcoin futures or invest in blockchain startups. Additionally, by investing in a Bitcoin ETF, you may eliminate the security risks associated with digital asset storage.