Topics Crypto

Long-Term Crypto Investment Strategies That Work

Beginner

Investing is a long-term game. The general idea of long-term investment is to put money into the market and earn interest or sell when the price appreciates. As a result, investors can grow their savings or plan for retirement in any financial market — stocks, forex, cryptocurrencies, and/or precious metals. However, successful long-term investment is not an easy task, particularly in the cryptocurrency market.

Long-term crypto investment means investing in crypto for longer than a year’s horizon, or HODLing. A long-term investment is quite different from short-term speculation, and investors should have explicit knowledge about what they are doing. In long-term investments, they should hold assets for a year or more. Therefore, being a long-term investor means accepting a higher amount of risks (compounded by time periods) to get a higher return.

In the context of cryptocurrency, long-term investment comes with inherent risks. This is because the market is still unfamiliar to many people. However, the crypto market is becoming better known day by day, and institutions are keeping their eyes on it. Therefore, it presents a great investment opportunity for long-term investors who want to diversify their portfolios.

Moreover, without a systematic approach, any investment decision may become obsolete. For this reason, investors should focus on building an investment strategy with an appropriate risk assessment and an exit strategy.

In the following section, we will detail a complete guide to long-term crypto investment strategies.

What is Long-Term Investment?

Generally, long-term investment is a form of trading strategy that seeks to profit by holding an asset for more than three years. Standard long-term investment occurs when company X holds a significant investment in company Y without having a majority of voting shares. The purchase price is considered a balance sheet item, while the short-term investment stocks are related to the company’s profit/loss. The sale of long-term investments would ordinarily be classified as other comprehensive income, not related to direct profit/loss.

Now, let’s go through a practical example to better illustrate the idea of long-term investment.

Let’s start with two brothers, Bill and Joe. They saved $100 a month for their long-term investment plan, and after 20 years, they got $24,000 each with the same annual return of 8%. Bill had started investing at the age of 36, while Joe waited until he was 46. At age 56, Bill will have a total amount of $131,613, and Joe’s balance will be $59,295.

In the example, the return has been doubled for the same investment simply because Bill started ten years before Joe. This illustrates how a long-term investment option is more beneficial than a short-term investment (due to accrued interest).

In the cryptocurrency market, holding onto a long-term investment is known as “HODL.” It is a misspelt version of “hold,” and became a crypto market meme after being posted on the Bitcointalk Forum in December 2013. (Some crypto investors wryly interpret it as “hold on for dear life.”) Nowadays, “HODL” typically refers to the buy-and-hold investment strategy within the context of the cryptocurrency market.

Why Invest for the Long Term in a Volatile Market?

A long-term investment is a reliable way to maximize the return for a stable asset. Many individuals who lack knowledge about technical analysis and market behaviour depend mainly on long-term investment. One common advantage of a long-term investment is that it doesn’t require observing the market on a daily or weekly basis, or making a trading decision based on intraday market analysis.

Investing in a trading asset is not a long-term strategy. However, investors can choose it with the intention to sell after some years. In that case, it will be considered a non-current asset item on the balance sheet, and its benefit will be shown on a fair value basis. On the other hand, profit/loss from a short-term investment directly affects institutions’ profit/loss. As a result, it is effective for institutions that want to increase the value of their assets, and get benefits as other comprehensive income to the income statement. However, long-term investment requires a significant investment amount that is often difficult to hold for many individuals or institutions.

In short-term investment, traders make money from a short-term price fluctuation that may provide more profits than just holding onto the asset. As a result, long-term investments are often risky because there is no way to change investment decisions after execution. However, considering the brokerage fees, capital gain tax, and professional fees, long-term investment is cheaper and requires less effort.

Overall, long-term investing is a great way to diversify a portfolio in emerging markets, such as Bitcoin or other cryptocurrencies, while holding short-term investments in traditional markets.

Types of Cryptocurrencies for Long-Term Investment

Investors usually buy Bitcoin or other cryptocurrencies and hold them for an extended period, ignoring short-term fluctuations. In this case, it isn’t a simple matter to find just any particular crypto asset or stock for long-term investment.

However, cryptocurrencies that survived the 2021 crypto crash are prominent, due to their market stability and investors’ acceptance. Let’s have a look at the top five cryptocurrencies that survived the crypto crash in 2021:

Bitcoin (BTC) As the very first crypto ever created, Bitcoin has survived longer than any other cryptocurrency and is considered a safe haven for long-term investors. Bitcoin also has the highest market valuation of any cryptocurrency given its extensive history. In fact, BTC is such a dominant force in the cryptocurrency market that the price fluctuations of both blue chip and non-blue chip currencies frequently follow its lead.
Ethereum (ETH) Ethereum is the largest blockchain by usage, supporting over 2900 decentralized applications (dApps) and over 70% of all available altcoins. It has the second-largest cryptocurrency by market cap and has been a significant force in the crypto industry since its beginning in 2015. This makes Ethereum very attractive as an investment for long-term and short-term investors alike.
Binance Coin (BNB) Binance Coin plays an essential role in the Binance ecosystem. It was initially designed to pay listing fees, exchange fees, trading fees and other expenses on the Binance exchange but has since launched the Binance Smart Chain to bring more utility to the cryptocurrency. BNB has consistently ranked among the top 3 cryptocurrencies in market cap which gives investors the confidence to hold the asset.
Tether (USDT) Tether is a cryptocurrency designed to be valued at one US dollar as it is backed primarily by US dollars and US Treasury Bills. Created in 2014, Tether is the largest stablecoin in market cap and has maintained its peg through a few bear markets. Investors tend to sell their cryptocurrencies into Tether when reallocating their capital or on-ramping to purchase new cryptocurrencies. Although it has a stable price, it can gain in value against other weaker currencies in times of global inflation or recession.
Ripple (XRP) Ripple has been around since 2012 and managed to stay among the top 10 largest market cap while other cryptocurrencies have dropped off significantly. It has climbed to the fourth largest market cap behind BNB at $17.8 billion, despite the years of lawsuits around Ripple and XRP. Although XRP has come a long way, it remains to be seen if XRP would be able to survive future bear markets.

Additionally, cryptocurrencies that yield dividends are also effective for long-term investment. Holding onto assets can yield both dividends and price appreciation for investors. Other top performing cryptocurrencies that survived include:

Note, however, that investing in a cryptocurrency market requires a systematic approach. An appropriate investment strategy is mandatory in order to make any investment decision.

Investment Strategies

Whatever we want to achieve, it’s important to have a plan. Long-term investment strategies consist of a complete investment plan that considers investment objectives, risk assessment, time horizon, tax implication, and entry & exit plan. Investors should have a well-researched trading strategy that is effective in the market and has a long history of providing returns.

However, investing in the cryptocurrency market is different from traditional forex or the stock market. For this reason, it requires some exclusive and effective investment strategies. There are five ways to invest in the cryptocurrency market:

Buy the dip and HODL One of these effective investment strategies is buy and “HODL” since investors have to hold the asset only. With this strategy, investors typically prefer to buy the dip on blue-chip coins with the intention of holding them for a long time. Since market timing is difficult and no one truly knows how an asset class is going to perform, investors with a long-term timeframe would rather buy and HODL blue-chip coins to disregard short-term swings.
Staking Staking is the process where investors pledge their cryptocurrencies to secure the network on proof-of-stake (PoS) blockchains. This is similar to the dividends from stocks which gives investors staking rewards in the form of additional coins. As a result, staking can be an effective long-term investment strategy, allowing you to passively increase your holdings or investment income over time. However, staking is only available with cryptocurrencies that employ a proof-of-stake model.
Dollar-cost average Another is dollar-cost averaging (DCA), a cryptocurrency investment strategy where investors allocate the amount of capital periodically, which is a “big secret” for small investors who cannot accumulate the investment requirement all at once. This allows you to spread your money out over the course of a long time frame by purchasing the same amount of assets each month. While this strategy can mitigate downside risk, it can similarly limit the upside reward of investing when prices are lowest.
Asset reallocation Yet another strategy is asset reallocation, where investment decisions are made after analyzing macroeconomic factors. Some coins might yield better returns than others after a while due to factors such as slow development or FUD. Investors would sell the cryptocurrencies that are performing poorly and use the capital to buy new coins with better narratives and risk-reward ratio.
Active trading Active trading is for investors that have the time and experience to buy and sell cryptocurrencies based on short-term movements to profit from the price movements on chart. While this is different from the buy and HODL strategy for passive investors, active trading can allow you to purchase an coin at a good entry price which you might eventually decide to HODL.

The new route to long-term investment success depends on the execution and management of risks. To get the maximum output, investors should include a time horizon and risk assessment in their strategy. They must have a clear knowledge about how long they want to hold the investment — and how much risk they can afford.

Cost of Long-Term Investing in Cryptos

A long-term investment is cheaper than trading, but investors should be concerned about some high costs before jumping into the market. Below are some of the costs of long-term investing in cryptos:

Financial Advisory Fees: The financial advisory fee is an amount that investors usually pay to investment, finance and money professionals. Many crypto advisory firms provide crypto investment guidance, or rankings, like Vanguard’s long-term investment grade, which often works to find a potential investment opportunity.
Expense Ratio: The expense ratio refers to how many assets are used in administrative and other operating expenses. Investors should find potential crypto assets that have a lower expense ratio.
Extremely volatility: If you’re buying cryptocurrencies for a long-term investment, it is important to note that you will not always see stable returns. Cryptocurrency prices can spike to highs and crash to lows just as quickly. However, for the same reason, the rewards that you will reap when your investment succeeds is one of the major incentives for investors.
Extremely volatility: If you’re buying cryptocurrencies for a long-term investment, it is important to note that you will not always see stable returns. Cryptocurrency prices can spike to highs and crash to lows just as quickly. However, for the same reason, the rewards that you will reap when your investment succeeds is one of the major incentives for investors.

Is Long-Term Investment a Good Strategy When the Market Dips?

“Buying the dip” means purchasing a crypto asset when its price has dropped and assuming that its price will increase in value. This opportunity comes from watching the price chart for an extended time and observing when it suddenly crashes to a substantial lowest price, seen as a short-term decline.

In 2018, the Bitcoin price crashed from a peak of $19,675 to a level of $5,933. Therefore, if anyone bought at a lower value, it would be considered a buy dip. However, the financial market zigzags, forming swing highs and swing lows. So it is often difficult to find the actual dip. The best method is to find a strong bearish pressure in the market that induces multiple lows.

Another reliable method is to cite analysts’ reports to understand expert opinions on the movement. Investors with substantial knowledge of technical analysis are better equipped to interpret analysts’ reports regarding a market dip. Finally, a good cryptocurrency exchange with a reliable price and low cost is an excellent resource when buying a dip.

Overall, the success in buying a dip depends on the potential of the particular crypto for future growth. One of the best examples is Bitcoin, which crashed during the Covid-19 pandemic. Investors who bought that dip and HODLed are now enjoying triple-digit profits.

Bottom Line

As we can see from the above discussion, it’s clear that long-term investment is very effective if investors can choose the right asset. There is no exact way to say that a long-term investment is more potent than a short-term investment. Ultimately, it depends on an investor’s mindset and market behaviour. However, dividing your investment into both short-term and long-term outlays as a part of portfolio diversification is clearly recommended.

Lastly, having a solid knowledge of technical analysis, which refers to anticipating the price movement of a cryptocurrency by observing past price behaviour, is important to understanding market behaviour.