Is Cryptocurrency a Long Term Investment?
Bitcoin has been the world’s best-performing asset over the past decade. Bitcoin and the market-cap of the largest cryptocurrency beat the ROI (return of investments) of most stocks, gold and other commodities.
In 2011, the first Bitcoin exchanges were launched. Bitcoin gained worldwide attention in 2017 when it became available for trading. Bitcoin’s price was at its lowest point in January, around $1,000. It soared to $20,000 by December. This is 20x in less than a year.
Although the world was stunned to see the rush to purchase the new digital gold, most Bitcoiners didn’t sell one Satoshi. Why? They believe in Bitcoin as a long-term investment or, as it is commonly called, HODLing.
Long-term investing can be as easy as its name implies – it is simply taking a long-term perspective on investments. Everybody has a different definition of “long-term”. Stock market definitions of ‘long-term” vary widely. It can be anything that lasts for a number of months up to a number of years.
This guide will show you how to use this investment method to build a long-term crypto portfolio.
The Benefits of Long-term Cryptocurrency Investment
Historical Statistical Data
Historical data is vital to any long-term crypto investment. According to Investopedia, the S&P 500’s average annual return was between 10-11% from 1926 and 2018. Markets tend to trend upwards over the long term because the economy is growing.
Crypto is an entirely different game. HODLing and Dollar Cost Averaging have been proven to be the best investment strategies in the ten-year-old cryptocurrency market.
Keeps the Trading Fees at a Minimum
When you employ an active trading strategy to invest, transaction fees are likely to reduce your profits, particularly when trading margin with leverage. After allocating the cryptocurrencies to your long-term investment strategy you can simply HODL. You will not receive any additional payments, except the initial transaction fee.
You Don’t Have to Dip in & Out of the Market
You could miss out on significant gains by dipping in and going out of the market. With a long-term investment strategy, you don’t have to worry about staying in your current position. We recommend that you do not buy your long-term portfolio immediately, but instead use the DCA method to reduce volatility.
You don’t have to trade your crypto funds, so you can keep them safe in your hardware wallet. Hackers are attracted to exchanges, as we know. In fact, almost every major exchange suffered losses from hackings.
How to Evaluate the Right Cryptocurrencies for Long-term Investments
The expert team at Bitindex AI It is now clear that long-term-investment strategies have many benefits. However, it is important to think about which cryptocurrencies you would like to add to your portfolio or how to build it.
Let’s first identify indicators that can be used to assess the long-term potential of cryptocurrency. The expert team at Bitindex AI has put together a few suggestions:
You can determine whether cryptocurrency is being used by looking at the daily transactions and volume. You must distinguish between genuine transactions and zero-value, or spam transactions.
For example, Ethereum’s average daily transaction count is 800K. Many of these transactions are ERC-20 tokens. This proves that this particular network is being used quite regularly.
Market capitalization (or market share) can be defined as the market capitalization of a cryptocurrency relative to the whole market. Dominance is usually indicated by a large market share. Bitcoin’s market share currently stands at above 60% of total cryptocurrency market capitalization.
This can be used as an indicator to determine the viability of cryptocurrencies in our portfolio, including Bitcoin. You will notice projects with a market capitalization greater than one billion dollars. It will be simple to manipulate projects with a small market cap, like a few tens or millions of dollars. They could, however, have the potential for growth.
When deciding if cryptocurrency will be around in the future, it is important to consider whether the cryptocurrency is actually profitable and if there are users.
Ethereum, the second-largest cryptocurrency by market capital, is one example. ETH’s profitability comes from the ability to allow developers to create Decentralized Applications (dApps) into its blockchain.
Reporting on crypto news projects could have an impact on the price performance of certain tokens, particularly small-cap ones. Some projects are loved by the media because of their excellent marketing strategies, while others are less popular.
It is crucial to keep up with cryptocurrency news and market sentiment. To receive updates about development, it is a good idea to subscribe to the project’s updates website.
These are just a few indicators you can use in order to determine the viability of cryptocurrencies over time. Now we can discuss portfolio construction, specifically how much of each cryptocurrency should we have in our portfolio.
Cryptocurrencies do have a long-term value, especially because it is powered by blockchain technology. This technology has the potential to create new innovations in financial and other industries. Investing in crypto over the long-term is like investing in the crown jewel that is blockchain.