Bitcoin
3 Long-Term Cryptocurrency Investment Strategies
These easy-to-follow crypto investment strategies can help you build long-term wealth.
For much of cryptocurrencies’ existence, short-term trading strategies that seek to benefit from 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 crypto could represent an entirely new asset class, this appears to be changing.
More thought is being given to how to make crypto part of a well-diversified, long-term portfolio, 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 investment
The most straightforward approach to investing in crypto is simple buy and hold strategy. This is exactly what it sounds like: you find one or more cryptocurrencies you like and hold on to them forever. The idea here is that many major cryptocurrencies will appreciate greatly in the long term, even if they are prone to high volatility in the short term.
Of course, the only crypto that stands out here is Bitcoin (Bitcoin 0.35%), which remains the largest cryptocurrency in the world, with a market value of US$1.3 trillion. It is often the first cryptocurrency that individual and institutional investors buy, 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 retention period. Cathie Wood of ARK Invest recently crunched the numbers and determined that as long as you’re willing to hold your Bitcoin for at least five years, you’ll likely make substantial gains.
With Wood now predicting that Bitcoin could rise to a price of $1 million by 2030, this five-year holding period has particular significance for anyone thinking about becoming a crypto millionaire one day.
2. Dollar-Cost Averaging
A related crypto strategy is known as dollar cost averaging. While “buy and hold” typically entails a single large purchase, a dollar-cost averaging strategy entails a series of smaller, recurring purchases.
The main idea here is that you commit to regularly purchasing a certain dollar amount of a specific cryptocurrency, regardless of market conditions. For example, you might decide to buy $100 worth of Bitcoin every month.
Dollar-cost averaging can be like frequently saving money in a piggy bank. Image source: Getty Images.
This strategy can be particularly effective if you want to take the emotion out of investing. Instead of checking your portfolio every few days, you can check your portfolio just once a month. This means you can lock out market volatility and avoid being unduly influenced by cryptocurrency price fluctuations.
This is more important for cryptocurrency investors than for stock investors, simply due to the much greater volatility in the cryptocurrency market. Sometimes it can be desperate to see Bitcoin’s position fluctuate by 10% or more during a single 24-hour period.
3. ETFs for diversification
Lastly, Exchange-traded funds (ETFs) can be an effective way to diversify a long-term cryptocurrency portfolio. They are particularly popular among investors who prefer not to invest directly in the crypto market.
The new spot Bitcoin ETFs, 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 spot Bitcoin ETFs right now are the iShares Bitcoin Trust (I BITE 3.11%) and the Fidelity Wise Origin Bitcoin Fund (FBTC 3.15%).
Based on the initial success of spot Bitcoin ETFs, the expectation is that other cryptocurrencies will soon get their own spot ETFs. For example, the same Wall Street investment firms that brought spot Bitcoin ETFs to the market are trying to bring new spot ETFs Ethereum (ETH 5.01%) Market ETFs.
And don’t forget the ability to use more traditional ETFs for crypto market diversification. For example, you could invest in Valkyrie Bitcoin Miners ETF (WGMI 5.81%) if you are looking for broad exposure to the crypto mining sector. Or you could invest in an ETF like Amplify Transformational Data Sharing ETF (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. Simply put, you can buy a single Bitcoin mining stock or a basket of the top 20 Bitcoin mining stocks. So ETFs can be very useful if you are confident in the long-term potential of an industry but less confident about what the big winners will be.
Maintain a long-term focus
Just remember that it’s important to stay focused on the long term when investing in crypto. It’s easy to get distracted by the latest meme coins or short-term momentum games. By following one of the strategies outlined above, you can avoid this. Instead, you can focus on creating a long-term, well-diversified portfolio that generates real wealth.