It is generally believed that short-term investment strategies are more applicable in the cryptocurrency market as it is a high-risk and volatile industry. The market is relatively young, and despite the high profitability of successful crypto projects, everyone has heard of high-profile cases of cryptocurrency collapse and fraud.
At the same time, experienced traders and investors are adding bitcoin, ethereum and other altcoins to their portfolios as long-term investments and earning substantial returns.
Let’s take a closer look at how the strategy of long-term investment in cryptocurrencies is realized in practice and what you should pay attention to when choosing one or another project for investing money.
Fundamentals of long-term investment in cryptocurrencies
Long-term investment in cryptocurrency is the purchase of digital assets and their long-term storage without using them in the expectation of receiving a profit in the future. As a rule, not earlier than one year from now. The cryptocurrency industry is relatively young, so this period is shorter than in traditional markets, where long-term investments are made in shares of companies proven for decades.
Investors who choose such a strategy do not expect jumps or drops in the value of the coin, but focus on the long-term prospects of the project. They are not interested in daily fluctuations, they are not afraid of market crashes and recoveries. They know how to wait for the period when the coin will grow again and increase their initial investment two, three or dozens of times.
Interestingly, according to an internal survey of users of the Binance crypto exchange, more than 50% of them are ready to consider cryptocurrency as a long-term investment.
The most important thing when choosing this type of investment strategy is to determine the level of risk and realize that the lower the risk, the lower the return. The model of “throwing money in and locking in profits as soon as the coin has increased in value” does not work here. This tool is suitable for investors who are not thrill-seekers, but who are determined to receive a permanent passive income over the long term.
Next, it is necessary to realize the complexity of choosing a coin for investment. The number of cryptocurrencies is growing at a tremendous rate — CoinMarketCap has almost 10,000 projects at the time of writing. The rapid quantitative growth of the segment is clearly not conducive to an investor’s easy entry into the industry, and you are unlikely to find an analyst who will tell you without guile that they have analyzed all of these projects. Therefore, it will be important to find the exact criteria to rely on when choosing a coin to invest in.
Benefits of a long-term investment strategy
Reduced volatility risks
This investment strategy reduces the volatility risks of other assets in the portfolio. Despite potentially lower returns compared to high-risk assets, they guarantee future returns. Investors who choose the right coins and hold them for several years can realize significant returns.
Lower transaction costs
There are no costs associated with holding assets for the long term. This factor is often overlooked, but regular transactions can result in significant commission costs.
High potential returns
Short-term investors make money over the course of a day or a week, earning frequent but low returns. Successful long-term crypto projects promise sometimes literally fabulous profits. At the same time, investors who have made millions have invested relatively small amounts and have been spared the need to monitor the markets every day.
Disadvantages of long-term cryptocurrency investment
Freezing funds
This strategy requires the investor to understand that they are freezing funds for a long period of time and will not be able to use them. Regardless of the liquidity of the assets, they will be locked up and cannot be used until a certain period of time has elapsed.
Regulatory risks
As the legislation governing the digital asset market is still in its formative stages, it is difficult to predict how restrictions and controls by the authorities may affect the value of the assets and their liquidity.
Technological risks
Although blockchain is a well-protected technology, it can be prone to errors, failures and hacking. Serious vulnerabilities in the code or a powerful attack on the blockchain can result in the loss of funds.
How to choose a project?
You should be careful when choosing a project. At least, you can choose one of the popular coins that entered the market several years ago, survived the cryptozyme and continue to develop, increasing their value and expanding the community. Let it not be BTC or ETH, but another altcoin or DeFi project with a strong idea, advanced development team and bright advantages. One of the main advantages is stability, the ability to survive and grow even after the biggest crashes. Analysts consider such projects as the best object for long-term crypto investments.
Experts also recommend using all available tools for analysis. Technical analysis will probably be less useful for long-term investments, as it is more suitable for short-term investments and trading. Fundamental analysis, on the other hand, should be done as thoroughly as possible.
Fundamental Analysis
The long-term success of a stock can be determined by its fundamental characteristics, such as
What else should you consider when choosing a long-term investment strategy?
In order to maximize returns and effectively manage risk, there are a number of factors to consider when investing in crypto for the long term:
- Portfolio diversification. Diversification is one of the most important fundamentals of long-term investing. Spreading investments across different assets in a crypto portfolio significantly reduces risk. Losses from the decline in value of one coin will be offset by the growth of other assets.
- Cyclicality analysis. When looking for the exact time to enter or exit an investment, you need to understand the phases the market is in. Study and analyze the history of cycles, periods of rising, falling or increased market volatility. Then you will be able to identify patterns and choose the right time without succumbing to the euphoria of a bull cycle or the nervousness of a bear cycle.
- Awareness of the state of the industry. It is very important to be informed in order to invest wisely. Blockchain technologies are developing rapidly, market trends in the segment often change vector, and it is very important for a crypto investor to be aware of the latest events and new trends in order to make informed decisions. Subscribe to specialized resources and expert channels on social networks to receive regular information on crypto market forecasts and the current situation.
- Security. The issue of safe storage of cryptocurrencies is a priority for a long-term investor. Evaluate the possibilities and convenience of using cold or hardware wallets, the most secure storage of passwords to avoid the slightest risk of hacking and unauthorized access to your assets. Consider how and where you will store backups of private keys – these should be secure offline locations.
- Tax implications. Consult with a tax professional to determine the tax rules you must comply with depending on your country of residence. You may have to pay taxes and fees that you are not aware of.
- Join a circle of like-minded people. Become a part of the crypto investor ecosystem. Find a community of like-minded people with whom you can discuss all your ideas, questions and dilemmas. This will help you navigate and get the information or opinion you need faster.
Which cryptocurrencies do investors choose for long-term investment?
Let’s take a look at some of the cryptocurrencies that have the best track record for long-term investment:
Bottom line
Investing in cryptocurrencies over the long term can reduce the impact of market volatility on your investment portfolio, reduce transaction costs, and generate substantial returns in the future. This strategy requires thorough research.
The advantages of long-term cryptocurrency investing outweigh the disadvantages. The greatest investors of our time prefer long-term investments, and this is what they consider to be the source of their wealth. It is important to have patience and be able to choose the right asset — then all investments will be returned many times over. Here we can quote the words of Warren Buffett: “Invest in stocks that you are comfortable holding for at least 10 years. And if someone followed the billionaire’s advice and bought bitcoin when it was $100, then that lucky person is already a millionaire today. Surely, ten years of waiting is worth such a profit.
Thank you for your attention. Be aware of the latest trends and invest profitably!
AnyExchange is an international exchanger that has been successfully operating on the cryptocurrency market for more than five years. With our platform you can convert more than 100 currency pairs at the best exchange rate. We work with the most popular payment systems, bank cards and conduct transactions both electronically and in cash. Worldwide money transfer service is also available on the site.
