Crypto investments are increasingly receiving more attention from people who want to improve their financial situation. That’s because they provide solutions to regular investments, such as protecting users from inflation, ensuring broader access to assets and providing diversification into their portfolios. With crypto, users can approach different assets that stabilize their portfolio, from Bitcoin and Ethereum to Dogecoin and Shiba Inu. Of course, in terms of value, the Bitcoin price USD is paramount for an investor because it can influence the rest of the assets as they’re all altcoins.
However, investing in crypto has disadvantages. For instance, high volatility makes it difficult to be on top of the market because prices drastically change as they’re affected by trends and global issues. Network participants must also prepare with strong computational power to withstand the energy requirements while making sustainable profits.
But what if you’d invest in crypto for the long term? Let’s find out.
What is a long-term investment?
Investing is usually either short-term or long-term, depending on the period of holding and selling the crypto assets. Short-term crypto investments can take up to a few months but can also be done on a daily basis through different strategies. For instance, day trading involves buying and selling during the same day to leverage small price movements. On the other hand, long-term investments mean holding the assets as much as possible to benefit from increasing value over time.
How can you invest for the long term?
While crypto long-term investing seems easy, it’s actually pretty tricky to master since investors must face FOMO (fear of missing out), a typical response to the dramatic price shift in the crypto market. Investors prone to FOMO are the ones who don’t have a stable portfolio or investing strategy. Hence, when cryptocurrency prices suddenly increase or decrease, investors tend to sell or buy out of panic to avoid losing money or value.
That’s why investing in the long term is difficult, because it requires patience over a period of years to withstand the market. Bitcoin, for example, had severe price deviations during the years but was solid enough to be on top of the market. Therefore, most investors choose it for the long term because it offers a certain level of stability.
Long-term investment strategies
Investors can leverage numerous long-term strategies for a balanced portfolio and relatively stable income. For example, the dollar cost averaging method is one of the most common as it’s easy to implement. You only need to invest a set number of crypto over a specific period, which will help you avoid investing when prices are high. Indeed, the rewards are insignificant when the market is down, but this evens out the risks.
Staking is also pretty popular in crypto investing because you can earn additional rewards. Staking is used by pledging your coins into the network for more transactions to be validated, which in return provides more coins and interest. Staking helps earn passive income over time but has to be done with cryptocurrencies that support the PoS model, such as Ethereum.
One of the latest ways to invest in the long term is to approach Bitcoin ETFs, assets that don’t require investors to invest directly in the asset. These exchange-traded funds help avoid security issues and are low-cost, providing massive diversification to investors’ portfolios.
How safe is it to invest in the long term?
While long-term investing is the safest way to approach cryptocurrency as it saves users from volatility issues, it can also be challenging to mitigate. For instance, even dollar cost averaging must be approached carefully because as the markets rise over time, especially in crypto, it’s better to invest as early as possible. After all, starting late isn’t efficient. At the same time, using this strategy doesn’t mean you don’t have to check your investments. Risks still surround the market, and you must continue researching the best assets.
On the other hand, crypto staking is considerably challenging to deal with as a beginner because it poses the dangers of liquidity, network, lockup periods, and fraud. Even ETFs, one of the most awaited assets, are considerably volatile. ETFs were pretty popular in 2023 when investors were going wild about their advantages and the fact that the SEC isn’t approving any of these projects.
Should you invest for the short term instead?
Long-term investing takes too much time, so users must be incredibly patient to yield considerable results. On the other hand, those who choose to invest for the short term and ride the market’s waves can make more money with crypto.
Short-term investments are more flexible, so you’ve got plenty of time to change your approach and adapt to market volatility. Results are fast and tangible, so you’ll immediately feel rewarded for your efforts. At the same time, it’s pretty useful in an emergency, as you can always withdraw your money.
You can use day trading, a strategy in which you buy and sell crypto on the same day, but you need to analyze the market technically and make fast decisions. There’s also the swing trading method, where you hold the assets for a few days or weeks before doing something.
However, short-term investments are one of the most dangerous for any investor. That’s because you can lose all the value as fast as you gain it, so there’s not enough certainty of yielding good results. At the same time, the uncertainty surrounding the crypto regulatory framework might influence prices considerably. In the past year, financial institutions sued numerous exchanges, impacting the cryptocurrencies they were supporting, which might continue in 2024.
Final considerations
Long-term investing involves holding crypto assets for as long as possible, ideally for a few years, before buying or selling again. For example, if someone held Bitcoin from the beginning to this moment when the price increased considerably, they could profit from selling it. Long-term investing has plenty of advantages but is also risky due to market instability. Hence, you must always be up to the latest changes in the crypto market and diversify your portfolio.