Blockchain
3 Long-Term Cryptocurrency Investment Strategies
These easy-to-follow cryptocurrency investment strategies could help you build wealth in the long run.
For much of cryptocurrencies’ existence, short-term trading strategies that seek to take advantage of high volatility and sudden changes in momentum have defined the cryptocurrency market. But with the recent arrival of institutional investors, as well as new thinking about how cryptocurrencies could represent an entirely new asset class, things appear to be changing.
More thought is being given to how to make cryptocurrencies part of a well-diversified portfolio for the long term, and that’s good news for individual investors everywhere. So, if you’re thinking about investing in cryptocurrency for the long term, here’s a closer look at three popular investment strategies.
1. Buy-and-hold investments
The most straightforward approach to cryptocurrency investing is simple buy-and-hold strategy. This is exactly what it sounds like: you find one or more cryptocurrencies you like and hold them forever. The idea here is that many major cryptocurrencies will appreciate significantly over the long term, even if they are subject to high volatility in the short term.
Of course, the one cryptocurrency that stands out here is Bitcoin (Bitcoin -0.67%), which remains the largest cryptocurrency in the world with a market capitalization of $1.3 trillion. It is often the first cryptocurrency purchased by both individual and institutional investors, and for good reason. Over the past decade it has been one of the best performing assets in the world.
The key here, though, is to commit to a long holding period. Cathie Wood of ARK Invest recently crunched the numbers and determined that as long as you’re willing to hold onto your Bitcoin for at least five years, you’re likely to make substantial gains.
With Wood now predicting that Bitcoin could reach a price of $1 million by 2030, this five-year holding period has particular significance for anyone thinking of one day becoming a cryptocurrency millionaire.
2. Dollar cost averaging
A related crypto strategy is known as dollar cost averaging. While “buy and hold” typically involves a single large purchase, a dollar-cost averaging strategy involves a series of smaller, recurring purchases.
The key idea here is that you commit to purchasing a certain dollar amount of a particular cryptocurrency on a regular basis, regardless of market conditions. For example, you might decide to purchase $100 worth of Bitcoin each month.
Dollar-cost averaging can be like putting money away in a piggy bank frequently. Image source: Getty Images.
This strategy can be especially effective if you’re looking to take the emotion out of investing. Instead of checking your wallet every few days, you could only check it once a month. This means you can lock in market volatility and avoid being unduly influenced by cryptocurrency price swings.
This is more important for cryptocurrency investors than for stock investors, simply due to the much higher volatility in the cryptocurrency market. It can sometimes be unnerving to see your Bitcoin position fluctuate by 10% or more during a single 24-hour period.
3. ETFs for diversification
Lastly, Exchange Traded Funds (ETFs) could be an effective way to diversify a long-term cryptocurrency portfolio. They are particularly popular with investors who prefer not to invest directly in the cryptocurrency market.
The new Spot Bitcoin ETF, for example, are a way to invest in digital currency in the same way you would invest in technology stocks. Two of the most popular Bitcoin spot ETFs right now are iShares Bitcoin Trust (IBIT 3.11%) and the Fidelity Wise Origin Bitcoin Fund (FBTC 3.15%).
Based on the initial success of Bitcoin spot ETFs, the expectation is that other cryptocurrencies will soon receive their own spot ETFs. For example, the same Wall Street investment firms that launched Bitcoin spot ETFs on the market are trying to launch new ones Ethereum (ET 2.05%) ETF to be marketed.
And don’t forget the possibility of using more traditional ETFs for cryptocurrency market diversification. For example, you could invest in Valkyrie Bitcoin Miners ETF (WGMI 5.81%) if you are looking for broad exposure to the cryptocurrency mining industry. Or you could invest in an ETF like the Amplify the ETF on transformational data sharing (BLOCK 3.02%) if you are looking for broad exposure to blockchain technology companies.
The key idea here is diversification. It’s much easier to diversify your portfolio with a single ETF than it is to buy a handful of different stocks. Put simply, you could buy a single Bitcoin mining stock, or you could buy a basket of the top 20 Bitcoin mining stocks. Therefore, ETFs can be very useful if you have confidence in the long-term potential of a sector, but are less sure what the big winners will be.
Maintain a long-term focus
Just remember that it’s important to maintain a long-term focus when investing in cryptocurrencies. It’s easy to get distracted by the latest meme coins or short-term momentum plays. By following one of the strategies described above, you can avoid this. Instead, you can focus on building a well-diversified, long-term portfolio that creates real wealth.