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WHAT IS THE LONG-TERM OUTLOOK FOR CRYPTOS?

cryptos for longterm investments

May 3, 2021 | 

670 Views | 

JOHN K MWANIKI | 

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Investing has always been risky, but making the investment work for you can be incredibly rewarding. Unlike traditional stocks, cryptocurrencies are extremely volatile, and their users should be prepared for any scenario. FOMO buying(fear of missing out) and panic selling does not always work. With how unpredictable the crypto market movements are, it might be beneficial to look at the bigger picture.

Will bitcoin appreciate in the long run?

Bitcoin has a fixed supply market cap of 21million bitcoins, usually rewarded to miners for verifying transactions and securing the network. The supply rate is halved every four years or so, making the supply rate lesser with time. Bitcoin isn't the only cryptocurrency that uses this kind of periodic supply rate. Other altcoins also utilize the same meaning that they follow a depreciating supply schedule.

Even lost coins add on the asset's scarcity since only a small number of bitcoins will exist. However, cryptocurrencies have an attractive value proposition whereby you can invest in small amounts and reap huge profits. That is not to mean there are no risks involved. Savvy investors diversify their portfolio into numerous assets.

Bitcoin has frequently been compared to gold for both fundamental and technical reasons. According to Katie Stockton, a market technician, when gold peaked out in August 2020 and bitcoin broke out, gold has been down in six out of seven months while bitcoin rose in six out of the seven months. That means many investors might be perceiving bitcoin as a store of value now. 

Stockon also suggested that bitcoin is more of a risk asset now, although it seems to be stealing attracting buyers from gold. However, bitcoin is still in the innovator stage, which brings an opportunity, but it is highly volatile, and it is difficult to predict when the volatility will die out.

How about other altcoins?

Investing in bitcoins and a mix of other altcoins is an excellent place to start. That way, if a certain altcoin crashes, bitcoin or any other altcoin can save your investment portfolio and vice versa. Many altcoin investors have learned how to move into bitcoin whenever it starts to rally, which pushes bitcoin higher when other altcoins start decreasing in value.

How risky is the crypto market?

Although the crypto market presents profitable investment opportunities, it is highly unpredictable since it creates billionaires just as it creates bankrupts. There is not a risk-free investment; it all depends on your experience and intuition. When it comes to the crypto market, how much you invest is based on how much you are willing to lose. That gives you an idea about the risk level you are getting into in the crypto space.

Cryptocurrencies are decentralized, which means that, unlike the stock market, there is no one to hold accountable here. That makes the blockchain industry susceptible to scams, so it is best to invest in cryptos you think are legitimately valuable. Many people assume that because an asset increases in value, it is a worthwhile investment—a big mistake.

We have seen fraudulent ICOs and blatant pump and dump schemes, which means there is much to learn to understand the cryptocurrency space better. Simply put, do not capitalize on a project you can't identify its value.

The truth about decentralized systems

Bitcoin communities globally and supporters of other cryptocurrencies emphasize that these financial systems are trustless systems meaning that they are not compliant with any authority or government. It is easy to argue that cryptos are superior to fiat currencies because they are not dependent on any authority, such as the federal government.

The truth is, cryptocurrencies are not entirely trustless systems because they are based on blockchain or the underlying infrastructure powering them. Although it would be difficult, malicious authorities can impose their will on data miners who keep these networks running.

Is stable coin the way forward?

Stable coins are increasingly gaining popularity as a way to back up cryptocurrencies with real value assets like the way the US currency used to be on the gold standard. The assets can be virtually anything, including other currencies or commodities.

For instance, Tether (USDT) is a common stable coin with its value pegged to the US dollar. It allows traders to enter or exit markets at a moment's notice without waiting for fiat to crypto conversions. Stable coins offer crypto's versatility with a fiat currency's stability.

There are more than 4000 altcoins in the market, but not all of them are worth your investment. Note that the dollar value of an altcoin is not always proportional to how valuable it is. In fact, many utility tokens are more advantageous for the services they facilitate rather than their inherent value. Do not get lost in trend lines and technical indicators, but research first on your own.

What is the future of cryptocurrencies?

Volatile markets usually spark all kinds of emotions, especially for inexperienced traders. The good thing is that blockchain diverts control away from centralized systems to empower the individual investor. Short term investments may seem like the best way to make quick bucks, but it requires intuition, experience, and nuance. While bitcoin offers decentralized money, we can say that altcoins offer a decentralized economy.

The cryptocurrency industry is still in the innovator stage, but it is on its way to mainstream adoption. As more investors enter the crypto space, digital currencies might move from an investment in blockchain to an investment in the future economy.

CONCLUDING THOUGHTS

Crypto's long-term outlook is very much debatable. While proponents see endless potential, critics see nothing but risk. All in all, there are specific applications where cryptocurrencies and blockchain are viable options. The most sensible approach for profiting in the crypto space is diversifying one's portfolio of cryptocurrencies and re-balancing it periodically.

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