Long-term crypto investing involves purchasing and holding cryptocurrency assets with the expectation that their value will increase significantly over an extended period.
On the contrary, short-term trading seeks to profit from short-lived price fluctuations which has some potential benefits and commensurate risk.
In this blog post, we’ve carefully analyzed the best strategies for crypto long-term investing in addition to buying and holding crypto assets.
While many crypto investors profit from short-term trades, such as meme-coins that can surge or plummet within minutes, there are also remarkable success stories of those who have benefited from a long-term trading strategy.
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Key Takeaway
- Buy-and-Hold Strategy leverages long-term growth potential while minimizing the impact of short-term volatility.
- Dollar-Cost Averaging (DCA) reduces the effects of market fluctuation by spreading investments over regular intervals.
- Crypto ETFs provide diversification and risk reduction by offering exposure to multiple assets in a single investment.
I. Buy-and-Hold Investing
The buy-and-hold investing strategy involves purchasing and holding assets for an extended period, regardless of market fluctuations. This approach is grounded in the belief that, over time, the value of the investment will increase substantially.
This strategy is often associated with the term “HODL,” which originated from a 2013 misspelling of “hold” in a forum post by Bitcoin enthusiast GameKyuubi.
The term quickly evolved from a typographical error into a widely embraced philosophy among crypto investors (representing Hold on for Dear Life).
While the buy-and-hold concept is not new, Warren Buffett been one of the biggest proponents of buy-and-hold. In his 1988 letter to shareholders of his asset management firm and holding company, he famously wrote;
“Our favorite holding period is forever.”
Benefits of Buy-and-Hold Investing
- Allow you to benefit from the long-term appreciation of cryptocurrencies.
- It helps avoid the stress and potential losses associated with short-term market fluctuations.
- It reduces the impact of market noise by focusing on long-term trends rather than daily price movements,
- Minimizes transaction costs and tax implications associated with frequent trading.
Risks and Considerations
- The success of a buy-and-hold strategy depends on selecting cryptocurrencies with long-term potential.
- Not all cryptocurrencies will survive or thrive over extended periods.
- Cryptocurrencies are highly volatile, and holding assets during sharp declines can lead to substantial losses.
Case Study: Bitcoin Buy-and-Hold Success
Daniel Crocker, Business Owner
In 2012, Daniel Crocker was working as an apprentice at an IT company, where lunchtime conversations often revolved around side hustles and ways to earn extra income. During one of these discussions, the topic of Bitcoin emerged, sparking Daniel’s interest. Intrigued, he made a small investment in Bitcoin and decided to hold onto his coins long-term.
Over the next eight years, the value of his investment grew significantly. In 2020, Daniel sold a portion of his Bitcoin holdings, which provided enough funds to cover half the deposit on his new home. Reflecting on his experience, he acknowledged, “I know people who have gone all-in, but I think I’ve been lucky enough already.”
Kristoffer Koch, Norwegian Student
In 2009, Kristoffer Koch, a Norwegian student, was working on his master’s thesis in encryption technology when he stumbled upon Satoshi Nakamoto’s whitepaper on Bitcoin. His academic background helped him recognize the potential impact of this new cryptographic technology.
Curious, he invested a modest $26.60 in Bitcoin, which earned him an astonishing 5,000 bitcoins due to the low price at the time. Although his partner was initially skeptical about spending “real money” on “fake money,” Kristoffer’s small investment paid off.
In 2013, he noticed Bitcoin making headlines, calculated its value, and realized he was on the verge of becoming a millionaire. He sold 1,000 bitcoins, using the proceeds to purchase an apartment. With 4,000 bitcoins still in hand, his wealth soared into the hundreds of millions.
Implementation Tips for Buy-and-Hold Investing
- Focus on cryptocurrencies that show resilience, innovation, and growth potential.
- Research the technology, adoption rate, and competitive advantage of each asset.
- Established cryptocurrencies like Bitcoin and Ethereum are generally considered safer bets.
- Successful buy-and-hold investing requires discipline and a long-term perspective.
- Avoid making impulsive decisions based on short-term price movements or emotional reactions.
- Develop a clear investment plan and set realistic expectations.
- Adhere to your strategy even during market turbulence.
- Review your investment portfolio regularly to ensure it aligns with your long-term goals, but avoid frequently adjusting your holdings based on market sentiment.
II. Dollar-Cost Averaging (DCA)
Dollar-Cost Averaging (DCA) is an investment strategy where an investor regularly invests a fixed amount of money in an asset, regardless of its price at the time. This approach allows investors to purchase at different price points over time, potentially reducing the impact of market volatility.
In contrast, lump-sum investing involves investing a large amount of capital all at once, which may capture gains during price surges but also carries the risk of entering the market at a peak. DCA helps spread this risk by averaging the purchase price over time, thus smoothing out short-term fluctuations.
While DCA can protect against volatility, especially in a declining or fluctuating market, lump-sum investing can outperform during prolonged upward trends. Each strategy has its merits, depending on market conditions and the investor’s risk tolerance.
Benefits of Dollar-Cost Averaging
- The averaging effect lowers the average cost per unit over time and provides a cushion against severe price swings.
- DCA simplifies investing by establishing a clear, automated plan.
- It also eliminates the need to time the market or make decisions based on short-term price movements.
Risks and Considerations
- DCA can mitigate market volatility but may lead to missed opportunities in strong bull markets.
- In a rapidly rising market, lump-sum investing might yield higher returns compared to spreading investments over time.
- Investors using DCA may miss out on gains if the market experiences a significant upward trend shortly after their initial investment.
- Skipping contributions or changing the frequency of investments can undermine the strategy’s benefits.
Trade Simulation: Dollar-Cost Averaging in Bitcoin Investment
Using a DCA Bitcoin investment calculator, consider an investor who invested $10 in Bitcoin every week over a three-year period, consistently investing across 156 weeks. By now, the total amount invested has reached $1,570.
Given Bitcoin’s market volatility for the past three years, the value of these weekly purchases fluctuates significantly. However, by investing at different price points, the average cost of Bitcoin is smoothed out.
According to the calculator, after three years, the total value of the Bitcoin accumulated would be approximately $3,214—resulting in a 104.71% increase. This calculation illustrates how the DCA strategy can effectively mitigate volatility and yield substantial returns over time.
Implementation Tips
- Set up automatic investments at predetermined intervals (e.g., weekly, bi-weekly, or monthly).
- Utilize features on exchanges and investment platforms that automate this process.
- Determine a fixed amount that aligns with your financial goals and budget.
- Ensure investments are executed consistently to stick to your plan.
- Select investment intervals and amounts based on your financial situation and goals.
- Regularly review and adjust your plan if necessary while maintaining discipline to stick to your schedule.
III. Crypto ETFs for Diversification
Crypto ETFs (exchange-traded funds) make investing in cryptocurrencies easier by allowing investors to buy into a mix of digital currencies through a single fund. This removes the stress of managing individual crypto assets.
A big advantage of crypto ETFs is that they spread the risk by holding several cryptocurrencies. If one loses value, others might perform better and help balance things out. Plus, experts manage these funds, so investors don’t have to monitor the market themselves constantly.
Crypto ETFs are also easy to buy and sell on regular stock exchanges, and many are regulated, offering more security than directly investing in cryptocurrencies. This makes them a simpler and safer option for long-term crypto investing.
Types of Crypto ETFs: Overview and Investment Strategies
The table below outlines the key types of crypto ETFs: spot ETFs, futures-based ETFs, blockchain ETFs, inverse (short-selling) ETFs, and leveraged ETFs. Each category is designed for specific investment strategies and has its own risk.
| Type of Crypto ETF | Overview & Strategy | Examples |
| Spot ETFs | These ETFs invest directly in cryptocurrencies, offering exposure to price movements and potentially higher returns than futures-based ETFs. | Bitwise Bitcoin ETF (BITB), Grayscale Bitcoin Trust ETF (GBTC) |
| Futures-based ETFs | These ETFs invest in cryptocurrency futures to track prices, allowing exposure without owning the assets, often less risky and lower cost. | ProShares Bitcoin Strategy ETF (BITO), VanEck Bitcoin Strategy ETF (XBTF) |
| Blockchain ETFs | These ETFs focus on companies in the blockchain space, providing growth exposure with potentially lower risk than direct crypto investments. | Amplify Transformational Data Sharing ETF (BLOK), Siren Nasdaq NexGen Economy ETF (BLCN) |
| Inverse (Short-Selling) ETFs | These ETFs are designed to profit from a decline in the value of cryptocurrencies by shorting futures contracts or using derivatives; this strategy benefits from falling prices and can hedge against potential market downturns. | ProShares Short Bitcoin ETF (BITI), Direxion Daily Bitcoin Bear 1X Shares (BITD) |
| Leveraged ETFs | Use leverage to amplify returns; high-risk investment option suitable for investors with a strong risk tolerance. | Volatility Shares 2X Bitcoin Strategy ETF (BITX), Direxion Daily Bitcoin 2X Bull (BITU) |
Spot ETFs are generally considered the best for long-term investment due to their direct exposure to the actual assets, allowing investors to benefit from the long-term growth of cryptocurrencies.
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Benefits of ETFs
- ETFs simplify the investment process by offering a ready-made diversified portfolio.
- Investors don’t need to research and manage individual cryptocurrencies or rebalance portfolios manually.
- It helps smooth out the effects of price volatility and minimizes the impact of adverse movements in individual assets.
Risks and Considerations
- ETFs may yield lower returns compared to direct investments in individual cryptocurrencies.
- Since ETFs include a range of assets, their performance might be less volatile but also less explosive than high-performing individual cryptocurrencies.
- ETFs typically have management fees, which vary between funds and are deducted from the fund’s assets, potentially impacting overall returns.
Implementation Tips
- Choose crypto ETFs with a strong track record and low fees.
- Research various ETFs to compare historical returns, expense ratios, and overall performance.
- Prioritize ETFs with competitive fee structures to maximize returns while still providing diversified asset exposure.
- Review the underlying assets within the ETF to ensure alignment with your investment goals and risk tolerance.
- Some ETFs may focus on large-cap cryptocurrencies, while others may include small-cap or emerging assets.
- Ensure the ETF’s holdings and objectives match your investment strategy and financial goals.
Conclusion
Profit is the end goal of every investment and even the motivation behind any short-term or long-term investment. With the buy-and-hold strategy, dollar-cost averaging (DCA), and investing in crypto ETFs, investors can effectively position themselves for substantial gains over time.
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However, the effectiveness of a strategy can change over time due to market conditions, changes in your financial situation, or shifts in your investment goals. It is important to regularly evaluate and adjust your investment strategies.
