Topics Crypto
Bybit Learn
Bybit Learn
May 14, 2021

Long-Term Crypto Investment Strategies That Work

Investing is a long-term game. The general idea of long-term investment is to put money into the market and earn interest or sell when the price appreciates. As a result, investors can grow their savings or plan for retirement in any financial market — stocks, forex, cryptocurrencies, and/or precious metals. However, successful long-term investment is not an easy task, particularly with the cryptocurrency market.

Long-term crypto investment means investing in crypto for longer than a year’s horizon, or HODLing. A long-term investment is quite different from short-term speculation, and investors should have explicit knowledge about what they are doing. In long-term investment, they should hold assets for a year or more. Therefore, being a long-term investor means accepting a higher amount of risks (compounded by time periods) to get a higher return.

In the context of cryptocurrency, long-term investment comes with inherent risks. This is because the market is still unfamiliar to many people. However, the crypto market is becoming better-known day by day, and institutions are keeping their eyes on it. Therefore, it presents as a great investment opportunity for long-term investors who want to diversify their portfolios. 

Moreover, without a systematic approach, any investment decision may become obsolete. For this reason, investors should focus on building an investment strategy with both an appropriate risk assessment and exit strategy. 

In the following section, we will detail a complete guide to long-term crypto investment strategies. 

What is Long-Term Investment?

Generally, long-term investment is a form of trading strategy that seeks to profit by holding an asset for more than three years. Standard long-term investment occurs when company X holds a significant investment of company Y without having a majority of voting shares. The purchase price is considered a balance sheet item, while the short-term investment stocks are related to the company’s profit/loss. The sale of long-term investment would ordinarily be classified as other comprehensive income, not related to direct profit/loss.

Now, let’s go through a practical example to better illustrate the idea of long-term investment.

Let’s start with two brothers, Bill and Joe. They saved $100 a month for their long-term investment plan, and after 20 years, they got $24,000 each with the same annual return of 8%. Bill had started investing at the age of 36, while Joe waited until he was 46. At age 56, Bill will have a total amount of $131,613, and Joe’s balance will be $59,295. 

In the example, the return has been doubled for the same investment simply because Bill started ten years before Joe. This illustrates how a long-term investment option is more beneficial than a short-term investment (due to accrued interest).

In the cryptocurrency market, holding onto a long-term investment is known as “HODL.” It is a misspelled version of “hold,” and became a crypto market meme after being posted on the Bitcointalk Forum in December 2013. (Some crypto investors wryly interpret it as “hold on for dear life.”) Nowadays, “HODL” typically refers to the buy-and-hold investment strategy within the context of the cryptocurrency market.

Chart Source: TradingView

Why Invest for the Long Term in a Volatile Market?

A long-term investment is a reliable way to maximize the return for a stable asset. Many individuals who lack knowledge about technical analysis and market behavior depend mainly on long-term investment. One common advantage of a long-term investment is that it doesn’t require observing the market on a daily or weekly basis, or making a trading decision based on intraday market analysis.

Investing in a trading asset is not a long-term strategy. However, investors can choose it with the intention to sell after some years. In that case, it will be considered as a non-current asset item on the balance sheet, and its benefit will be shown on a fair value basis. On the other hand, profit/loss from a short-term investment directly affects institutions’ profit/loss. As a result, it is effective for institutions that want to increase the value of their assets, and get benefits as other comprehensive income to the income statement. However, long-term investment requires a significant investment amount that is often difficult to hold for many individuals or institutions.

In short-term investment, traders make money from a short-term price fluctuation that may provide more profits than just holding onto the asset. As a result, long-term investments are often risky because there is no way to change investment decisions after execution. However, considering the brokerage fees, capital gain tax, and professional fees, long-term investment is cheaper and requires less effort.

Overall, long-term investing is a great way to diversify a portfolio in emerging markets, such as Bitcoin or other cryptocurrencies, while holding short-term investments in traditional markets.

Types of Cryptocurrencies for Long-Term Investment

There are two ways to invest in the cryptocurrency market:

  1. HODL
  2. Active trading.

With HODL, investors usually buy Bitcoin or other cryptocurrencies and hold them for an extended period, ignoring short-term fluctuations. In this case, it isn’t a simple matter to find just any particular crypto asset or stocks for long-term investment. However, cryptocurrencies that survived the 2018 crypto crash are prominent, due to their market stability and investors’ acceptance.

Let’s have a look at five cryptocurrencies that survived the crypto crash in 2018:

  1. Bitcoin
  2. Ethereum
  3. Litecoin
  4. Monero

Additionally, cryptocurrencies that yield dividends are also effective for long-term investment. Holding onto assets can yield both dividend and price appreciation for investors. Here is a list of such digital assets:

  • VeChain (VET) 
  • Neo (NEO) 
  • Decred (DCR) 
  • Komodo (KMD) 
  • PIVX (PIVX) 
  • Reddcoin (RDD) 
  • Navcoin (NAV) 
  • Neblio (NEBL) 

Note, however, that investing in a cryptocurrency market requires a systematic approach. An appropriate investment strategy is mandatory in order to make any investment decision.

Investment Strategy 

Whatever we want to achieve, it’s important to have a plan. Long-term investment strategies consist of a complete investment plan that considers investment objectives, risk assessment, time horizon, tax implication, and entry & exit plan. Investors should have a well-researched trading strategy that is effective in the market and has a long history of providing returns. However, investing in the cryptocurrency market is different from traditional forex or the stock market. For this reason, it requires some exclusive and effective investment strategies.

One of these effective investment strategies is “HODL” since investors have to hold the asset only. Another is dollar-cost averaging (DCA), a cryptocurrency investment strategy in which investors allocate the amount of capital periodically, is a “big secret” for small investors who cannot accumulate the investment requirement all at once. And yet another strategy is asset reallocation, where investment decisions are made after analyzing macroeconomic factors. 

The new route to long-term investment success depends on the execution and management of risks. To get the maximum output, investors should include a time horizon and risk assessment in their strategy. They must have a clear knowledge about how long they want to hold the investment — and how much risk they can afford. 

Cost of Long-Term Investing in Cryptos

A long-term investment is cheaper than trading, but investors should be concerned about some high costs before jumping into the market. Below are some of the costs of long-term investing in cryptos:

  • Financial Advisory Fees: The financial advisory fee is an amount that investors usually pay to investment, finance and money professionals. Many crypto advisory firms provide crypto investment guidance, or rankings, like Vanguard’s long-term investment grade, which often work to find a potential investment opportunity.
  • Expense Ratio: The expense ratio refers to how much assets use in terms of administrative and other operating expenses. Investors should find potential crypto assets that have a lower expense ratio.
  • Compound interest through loans and credit card payment: If your long-term investment in the cryptocurrency market includes any money from loans and credit cards, it is subject to interest expense. If the outcome is less than the interest expense, investors should avoid buying that particular asset.

Is Long-Term Investment a Good Strategy When the Market Dips?

“Buying the dip” means purchasing a crypto asset when its price has dropped, and assuming that its price will increase in value. This opportunity comes from watching the price chart for an extended time and observing when it suddenly crashes to a substantial lowest price, seen as a short-term decline.

In 2018, the Bitcoin price crashed from a peak of $19,675 to a level of $5,933. Therefore, if anyone bought at the lower value, it would be considered as a buy dip. However, the financial market zigzags, forming swing highs and swing lows. So it is often difficult to find the actual dip. The best method is to find a strong bearish pressure in the market that induces multiple lows.

Another reliable method is to cite analysts’ reports, in order to understand expert opinions for the movement. Investors with substantial knowledge about technical analysis are better equipped to interpret analysts’ reports regarding a market dip. Finally, a good cryptocurrency exchange with a reliable price and low cost is an excellent resource when buying a dip. 

Overall, the success in buying a dip depends on the potential of the particular crypto for future growth. One of the best examples is Bitcoin, which crashed during the Covid-19 pandemic. Investors who bought that dip and HODLed are now enjoying triple-digit profits.

Chart Source: TradingView

Bottom Line

As we can see from the above discussion, it’s clear that long-term investment is very effective if investors can choose the right asset. There is no exact way to say that long-term investment is more potent than a short-term investment. Ultimately, it depends on an investor’s mindset and market behavior. However, dividing your investment into both short-term and long-term outlays as a part of portfolio diversification is clearly recommended.

Lastly, having a solid knowledge of technical analysis, which refers to anticipating the price movement of a cryptocurrency by observing past price behavior, is important to understanding market behavior.