A long-time investor is someone who, as the name suggests, adopts a buy-and-hold strategy. These investors aren’t looking for short-term profits—they’re in it for the long haul.
The strategy of buying and holding a cryptocurrency is often referred to as “HODL,” short for “hold on for dear life.” This strategy reduces risk for investors because they’re not affected by short-term volatility.
As for how long you should hold on to your crypto, we hesitate to answer this because everyone’s financial situation is different. But often, people treat bitcoin (BTC) like gold and hold on to it for years.
Playing the long game
Long-time crypto investors believe patience and time are their biggest assets. In contrast to stock traders, for whom constant effort, ongoing research and active management are necessary, crypto investors focused on the long term tend to do their research up front, purchase their coins, place them in their wallets and let time increase the value of their cryptocurrencies.
For example, if an investor had purchased a single bitcoin on March 16, 2020, they would have paid US$5,000. That same bitcoin was worth US$40,900 on March 16, 2022. By doing their research up front on the potential value of the coin, purchasing it and leaving it alone, the investor would have enjoyed a return of more than 800% in two years.
Of course, there are no performance guarantees for bitcoin—or any other cryptocurrency—so it’s important to understand the risks and invest within your risk tolerance.
Strategies for crypto investors
Now, as we mentioned above, there isn’t just one answer as to how long you should hold on to your cryptocurrency. But there are methods that could give you a potential edge in maximizing your returns.
First, instead of buying your chosen cryptocurrency in bulk, you could employ a technique called dollar-cost averaging. This involves making small purchases of the cryptocurrency over a period of time, rather than buying a large amount at once. This strategy spreads out risk and helps prevent an investor from mistiming the markets.
Second, when you do see great profits over a period of time, your options aren’t limited to either selling off your entire investment or continuing to leave it untouched. You could choose to sell off your profits, then re-invest them into the same cryptocurrency when the price eventually drops.
Is Crypto a Good Long-term Investment?
Looking at the relatively short history of cryptocurrency provides some semblance of an answer to the question of whether crypto is a good long-term investment. Take Bitcoin and Ethereum, the two largest cryptocurrencies by market capitalization, for example. Bitcoin has appreciated nearly 12,000% since its launch in 2009, while Ethereum has increased in value by more than 92,000% since its inception in 2015. Had you invested early in either digital currency, you’d likely be considerably wealthy today.
Indeed, many cryptocurrencies have produced astronomical returns since Bitcoin kicked off the crypto craze 13 years ago. That’s led to the launch of hundreds of alternative coins over the years and trillions of dollars invested in the space. Does that make crypto a “good” investment for the long-term? It depends on your view of the industry and its future, including potential government regulation.
Many cryptocurrency enthusiasts who believe in its long-term viability have adopted the HODL strategy. This acronym, which stands for “hold on for dear life,” refers to the wild volatility that has come to define crypto markets. Bitcoin, for instance, has suffered 10 drops of at least 40% or more over the last decade. The HODL approach relies on whether these frequent crashes with the belief that the asset’s value will recover and appreciate further.
Which Cryptocurrencies are Best for Long-Term Investment?
With more than 10,000 cryptocurrencies in existence as of February 2022, it’s important to do your research on particular coins before investing in them. Because cryptocurrency is largely unregulated, the space is rife with financial scams and fraud. Here’s a look at some of the best cryptocurrencies to invest in for the long haul:
Bitcoin: The first cryptocurrency has dominated the space since its inception. Bitcoin is by far the largest cryptocurrency with a larger market cap than the next 20 largest cryptocurrencies, combined. There’s a finite supply of Bitcoin, as only 21 million will be mined, including nearly 19 million that are already in circulation. While the crypto market has rapidly expanded and evolved since Bitcoin was created, it has remained the gold standard of digital assets.
Ethereum: The second-largest cryptocurrency by market cap, Ethereum has been a powerful force in the world of digital currency and blockchain technology. While Bitcoin functions purely as a store of value, Ethereum is a network onto itself with its own native coin called Ether. Beyond serving as a tradable currency like Bitcoin, Ether powers applications and contracts that are built on the Ethereum network, giving it more real world usability than its big brother. This makes Ethereum a potentially valuable asset for the long term.
Tether: While Bitcoin and Ethereum are often subject to volatility, the third-largest digital currency by market cap seeks to provide greater stability. That’s because Tether is a stablecoin, a cryptocurrency linked to a fiat currency or commodity. Tether tracks the value of the U.S. dollar, so it offers investors much greater stability than other cryptocurrencies but not nearly the potential upside.
Cardano: The sixth-largest cryptocurrency by market cap, Cardano is a proof-of-stake blockchain platform that validates transactions by using existing tokens. The native coin of the Cardano network is ADA, which like Bitcoin, has a finite supply. While there are currently approximately 33.6 billion ADA tokens in circulation, only 45 billion will be mined in total.