Over the last decade, Bitcoin has been the world’s best-performing asset. Bitcoin and the top cryptocurrencies by market capitalization outperform the vast majority of stocks available on any market, as well as gold and other commodities.
The first Bitcoin exchanges went live in 2011. However, Bitcoin did not gain widespread attention until the year 2017. Back then, the price was roughly $1,000 in January and had risen to $20,000 by December — a then all-time high for Bitcoin. That wass a 20x increase in less than a year (!).
While the rest of the world was startled to see individuals racing to buy the new digital gold, many Bitcoiners did not even sell a single Satoshi. Why? Because they see Bitcoin as a long-term investment, or as it is colloquially known, HODLing.
This post will show you how to use this investment approach to build a long-term cryptocurrency portfolio.
Long-term investing is as basic as its name implies: investing for the long term. Everyone defines the phrase “long-term” differently. Long-term in the stock market often refers to something that lasts years.
However, because the bitcoin market moves too quickly due to excessive volatility, we can reduce that number to a few months or a year. When it comes to the stock market, famed investor Warren Buffet is a proponent of long-term investing due to the numerous benefits it provides.
3 Benefits of Long-Term Crypto Investment
1. Historical Data
Historical evidence from a growing economy has shown that it works. According to Investopedia, the average yearly return on the S&P 500 from 1926 to 2018 was 10-11%. Because the economy is growing over time, markets tend to trend upward in the long run.
Of course, cryptocurrency is a different ballgame. However, even in the decade-young bitcoin market, HODLing and Dollar Cost Averaging has proven to be the strongest investment approach.
If you choose an active trading strategy to investing, it is expected that transaction fees would reduce your profits, especially if you trade on margin with leverage.
After allocating the bitcoins in a long-term investing strategy, all you have to do is HODL. Aside from the initial transaction costs, no additional payments are expected in the future.
2. You Can’t Time the Market
Diving in and out of the market may cause you to miss out on days when substantial gains are earned. Missing the best day for Bitcoin in 2019, October 26 – the Chinese Pump, means missing out on a possible ROI of 42%.
With a long-term investment approach, you don’t have to worry about being inside your position. Keeping this in mind, we recommend buying your long-term portfolio in stages rather than all at once to prevent volatility.
3. Crypto-Security First
Because you are not an active trader, you do not need to retain your crypto funds on any exchange, but rather in your hardware wallet. As we all know, exchanges are attractive targets for hackers, and practically all of the major exchanges have incurred losses as a result of hackings.
5 Key Metrics For Evaluating Cryptocurrencies In The Long-Term
Now that the advantages of a long-term investing strategy have been established, it is critical to examine which cryptocurrencies you want to include in your long-term portfolio, as well as how to construct your portfolio.
Let us now identify a few signs that can be used to assess the long-term potential of cryptocurrencies. Here are five examples of valuable metrics:
1. Market Cap
Market capitalization, also known as market share, is the proportion of market capitalization that a cryptocurrency possesses in comparison to the total market.
Typically, a significant market share denotes dominance. For example, Bitcoin currently accounts for approximately 67% of the overall market capitalization of the cryptocurrency ecosystem. We can use this as an indicator to judge the long-term viability of cryptocurrencies, including Bitcoin, in our portfolio. Take note of projects with a market cap more than one billion USD.
Projects with a little market capitalization, such as a few tens of millions of dollars, will be easier to influence. They may, however, have the potential to expand.
2. Utility
When deciding whether a cryptocurrency will exist in a few years, we must consider whether the coin is helpful and whether the project has users.
Ethereum, the second-largest cryptocurrency by market valuation, is one example. The utilitarian value of ETH stems from its ability to enable developers to build Decentralized Applications (dApps) on top of its network.
Binance Coin is another example (BNB). BNB is primarily utilized as the utility token of Binance, the largest exchange by trading volume. It is used to pay Binance fees and to participate in Binance’s IEOs (Initial Exchange Offerings).
3. Transactions and Daily Volume (USD)
You may look at the daily number of transactions and volume to see if a cryptocurrency is being used.
Make a distinction between legitimate transactions and zero-value or spam transactions.
As of this writing, the average number of transactions per day on Ethereum is roughly 800K. The majority of those are ERC-20 tokens. However, it demonstrates that the network is in use.
4. Current Development
This is an important feature of a cryptocurrency. If the technology underlying a cryptocurrency is unfit for purpose, the cryptocurrency will most likely fail in the long run. Aside from many hard and soft forks in 2019, Ethereum is focusing on transitioning to PoS and developing Ethereum 2.0.
This good technological development raises the chance of Ethereum becoming widely adopted, making it a viable contender for our project once more.
5. Market Sentiment and News
The price performance of a token, particularly a small-cap token, may be influenced by crypto news coverage of certain projects.
There are initiatives that the media likes since they follow their wonderful marketing tendencies, while other projects are not the press’s cup of tea. TRON’s marketing spend, for example, is most likely greater than Monero’s (XMR).
For the reasons stated above, it is critical to stay informed by following cryptocurrency news relevant to your initiatives and monitoring market sentiment. To receive development updates, it’s also a good idea to subscribe to updates on the project’s website.
These are only a few indicators you can use to identify a cryptocurrency’s long-term viability. With this in mind, we can move on to portfolio construction, especially determining what percentage of each cryptocurrency we should hold in our portfolio.
Conclusion
Investing in the cryptocurrency market is exciting, but it is also critical to ensure the security of your bitcoin assets. There have been far too many reports of cryptocurrency funds being taken due to a lack of protection.
It is an exciting time to invest in cryptocurrencies, and it is not too late. It is a new asset class that is now outperforming traditional markets in terms of returns (as of writing these lines).
However, having a strategy is equally essential. A lack of a pre-planned investing strategy can result in significant losses. A long-term investment strategy is simply one of several options available to you. You can even tailor the long-term investment strategy to your trading style. The most important thing is to have a plan in place for every possible scenario.
