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The long-term view for a crypto investment

longterm crypto investment

June 15, 2021 | 

JOHN K MWANIKI |  0 Comments| 

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Get Into Cryptocurrency Trading Today

There are, generally, three types of people who own cryptocurrencies. Those who use it as currency, especially for its privacy (cryptographic storage of transactions in blocks) and cost efficiency (peer-to-peer transactions without a middleman). The second type buys cryptocurrencies to trade with and benefit from short-term swings in the market. The third type includes long-term traders who buy and hold cryptocurrencies to buy later. 
In this article, you will learn about the pros and cons of long-term crypto investments and some tips on how you can start. 

Benefits of long-term cryptocurrency investments

1.    You will save on trading fees

Short-term cryptocurrency traders have to contend with many fees. They may have to pay transaction fees, cryptocurrency exchange fees, commissions, and spreads. A trader with a long-term view of crypto, on the other hand, will only pay the transaction fees every time they transact, which isn't often.

2.    No struggles with strategies 

Short-term traders need to pay attention to the strategies they use to trade. They may need exit and entry strategies, money management strategies, and strategies to calculate stop losses and take profits. They will need to implement these strategies with every trade. A long-term trader need only use their system a few times, if at all. They can simply research the cryptocurrency, then set it and forget it if to sell later. 

3.    Less emotional trading 

Trading requires you to master several things, the most important being your emotions (trading psychology). This is relatively harder when you go through the emotional rollercoaster of winning and losing trades every week. Some short-term traders fall into the trap of revenge trading to try and win back lost money. With long-term trading, you don't go through this emotional roller coaster as much, allowing you to be more level-headed in your decision-making. 

4.    You could make a lot of money

Short-term traders in the crypto markets can make money due to the high volatility. Long-term traders, however, have to potential to make a lot more money, especially if the currency is bullish. Take the example of Ether. In November 2015, it was selling at $0.86. In April of 2021, it hit a high of $2,760. Sure, short-term traders may have made some profits during the upswings, but the long-term traders who held their Ether from November 2015 to April 2021 earned more than 320,000% profit. 

5.    You don't have to keep up with the daily news

Shot-term traders frequently find themselves chasing the trend, trying to predict where it will go next. This can be pretty exhausting, especially for traders who need the news to make their day-to-day decisions. Long term-traders, on the other hand, are interested in the overall trend of the cryptocurrency. In essence, they do not need to know where the ripples are; they need only know about the waves. 

Disadvantages of long-term trading

As with most things, there are disadvantages to long-term crypto trading. They include;

1.    It's hard to predict the future of any cryptocurrency 

Cryptocurrencies rely heavily on human sentiments. That is why a crypto like Dogecoin, created as a meme, sometimes experiences strong bullish swings. This lack of predictability typically implies that most cryptocurrency traders (both short-term and long-term) have to follow the market rather than try and predict how it will behave in the future. 

Yet, because human sentiments are ever-changing, a cryptocurrency can be bullish one day and bearish the next. This is evident by Bitcoin's fall from its all-time high at $62,779 on April 15th,2021, to $37,730 on May 20th, 2021, a drop of over 35% in less than a month. These sporadic market movements mean that both long-term and short-term traders cannot fully predict how the market will behave at any time. 

2.    You can lose a lot of money

Trading the cryptocurrency markets is a double-edged sword. You could get profits several times over your initial investments or lose it all. This high volatility is why it is often advisable that only people with high-risk appetites trade cryptos. 

3.    Cryptocurrencies are still immature

Many people argue that cryptocurrencies are a bubble, similar to the dot-com bubble, and will eventually burst. However, they forget that even after the dot-com bubble burst, there were companies that survived and thrived. There may be a time in the future when cryptocurrencies gain mainstream acceptance. However, right now, people are still trying to understand them. Many times, people can only identify bubbles in hindsight. It may therefore be possible that the rush for cryptocurrencies is a bubble that will burst. Accepting this as a possibility makes cryptocurrencies a risky investment option.

Tips for long-term crypto investors

There are few, if any, 100% safe investment options. You are always taking a risk. If you feel that it is worth it to invest in cryptocurrencies, you will find the following tips valuable. 

  1. Research the cryptocurrency - There are several evaluatory criteria you can use to assess your cryptocurrency before investing in it. Thoroughly research the cryptocurrency by evaluating factors such as the tech behind it, its utility value, its current market cap, its scalability, and more. 

  2. Diversify your portfolio - It is never advisable to invest in only one trading vehicle. Instead, distribute the risk by buying several currencies. This will prevent you from losing all your money in one fell swoop when a cryptocurrency loses value.

  3. Decide how you will store your cryptocurrencies - There are two types of wallets, cold and hot wallets. Cold wallets are safer than hot wallets for storing your cryptocurrencies. Additionally, there's the issue of using a crypto wallet vs an exchange wallet. There are advantages and disadvantages to each. 

  4. Only invest money you are willing to lose - When you invest money that you need, you can be blinded by emotions, for example, by staying too long in a trade or making irrational decisions based on your feelings, not facts.

Conclusion

Not everyone invests in cryptocurrencies to day trade. Some investors want to buy and hold their crypto to sell at a later date. If you have been thinking about it, you should now better understand some of the pros and cons of long-term investments. 

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