3 Long-Term Crypto Investment Strategies (+4 Tips)
HODLing and DCA are the only two long-term crypto investment strategies with the most probability of bringing you substantial gains, while passive income sources, such as staking and yield farming, can be risky yet effective add-ons.
But why choose long-term crypto investment instead of trying to make quick cash with risky trades? The answer is pretty simple: Crypto trading is a high-intensity job that requires a lot of time and attention except a few trading strategies, while long-term investment strategies are effortless to manage.
Moreover, long-term crypto investment offers stability, allowing investors to ride out market volatility and benefit from the compounding potential of cryptocurrencies rather than chasing short-term profits and exposing themselves to high risks.
Therefore, in this guide, we will share the 3 best long-term crypto investment strategies and some tips on optimizing your success with these strategies.
3 Long-Term Crypto Investment Strategies
1. HODLing – The Time-Tested Strategy
The term “HODLing” has gained a cult-like following among crypto investors. But what exactly is HODLing, and why is it considered one of the best, if not THE best, long-term crypto investment strategy?
HODLing, born from a 2013 BitcoinTalk forum post where someone mistakenly spelled “hold” as “HODL,” has grown into an acronym for “Hold On for Dear Life.”
It’s when you buy a cryptocurrency and hold on to it for a long time, no matter the market conditions. Instead of trading and trying to time the market to make quick, short-term gains, HODLers adopt a patient approach. They understand that short-term turbulence often smooths out over time, and holding onto their investments can yield significant returns. However, this assumption is underpinned by a strong belief in the future potential of cryptocurrency.
Some early Bitcoin investors, like the Winklevoss twins, became billionaires because they HODLed.
But HODLing isn’t just about buying any random cryptocurrency and hoping it will make you rich. Investors should conduct rigorous research on the cryptocurrency, the technology and team behind it, and its potential use cases before deciding to HODL it.
What started as a funny mistake became a time-tested strategy for people believing in the long-term success of cryptocurrencies, especially Bitcoin. The big lesson here is that HODLing isn’t just about holding on tight. It’s about holding on with a plan.
2. Dollar-Cost Averaging (DCA) – The Simplest and Most Effective Strategy
Dollar-cost averaging is not a complex formula or a secret strategy. We’ve an in-depth guide on this, but simply put – It’s a simple, disciplined approach to investing. With DCA, you invest a fixed amount of money at regular intervals, regardless of the cryptocurrency’s current price. In essence, you’re spreading your investment over time.
DCA offers several advantages for long-term crypto investors. First and foremost, it helps to reduce the impact of market volatility. When prices are high, you buy less, and vice versa. Over time, this evens out the average price you’ve paid for your investments, providing a more stable and less stressful investment strategy.
Implementing DCA is straightforward. Choose an amount you know you could and would invest at regular intervals, whether weekly, monthly, or quarterly. Stick to this schedule, regardless of market ups and downs. It’s about consistency.
3. Staking and Passive Income – High-Risk-High-Reward
Passive income strategies allow your crypto investments to work for you, even while you’re not actively trading.
Staking is a way to participate in the operations of a blockchain network, and in return, you receive a portion of the newly created coins or transaction fees. But, not all cryptocurrencies are suitable for staking, and the rewards can vary. Here are a few from our list of best coins to stake: Ethereum, Binance Coin, Solanna, Cardano, and Polygon.
However, staking is not the only passive income stream for long-term crypto investment strategies. There is also yield farming.
Yield farming is a mix of strategies where users can earn returns by lending their cryptocurrencies or by participating in liquidity pools. However, the DeFi space is notorious for its volatility, smart contract vulnerabilities and potential for rug pulls.
Staking and yield farming can be an attractive long-term strategy for those who believe in the potential of specific blockchain projects. It offers a way to grow your crypto holdings without actively trading, making it especially appealing for investors seeking a more hands-off approach. But it’s not without its risks.
Tips for Long-Term Crypto Investment Strategies
The following are some tips for your long-term crypto investment strategies that will help you navigate the often turbulent waters of the crypto market while maintaining a steady course toward your financial goals.
1. Diversify your Portfolio
One of the fundamental principles in long-term crypto investment is portfolio diversification.
Instead of putting all your eggs in one basket, spread your investments across a range of cryptocurrencies. It acts like an insurance policy. It won’t protect you from all problems, but it protects you from huge losses if one investment goes wrong.
How do you do it? By carefully selecting a mix of established, well-known coins like Bitcoin and Ethereum, along with promising altcoins that align with your investment goals.
Diversification is not merely a suggestion but a cornerstone of effective investment plans, and for good reasons.
2. Be Aware of Crypto Taxes
The tax implications of your investment strategies are a crucial factor in deciding what to pursue and what NOT to.
Profits made from HODLing and DCA are often subject to capital gains taxes in most countries, such as the US, Canada, and Australia. However, there are exceptions. Moreover, since HODLing and DCA are long-term crypto investment strategies, most of your gains from them will also qualify for long-term capital gains tax rates, typically lower than long-term capital gains tax rates.
On the other hand, strategies like staking and yield farming can introduce more complexity to your tax situation. Although specialized crypto tax software, like Bitcoin.Tax can help, much of the tax framework around these DeFi transactions is still a grey area in most jurisdictions.
But roughly speaking, rewards earned from these activities are usually subject to ordinary income taxes upon receipt. Moreover, you’re also liable to capital gains taxes (if you make a profit) when you later sell them.
Considering taxes, HODLing and DCA seem better, especially considering that most long-term investors prefer simple and efficient investment strategies.
3, Security and Risk Management
Everyone knows the crypto space is a hotspot for scams, hacks, and theft, and if you’re planning to hold on to your cryptocurrencies for a long time, security and safety should be your number one priority.
- Use hardware wallets that keep your crypto offline.
- They’re much safer. Create strong, unique passwords and use two-factor authentication for your accounts.
- Keep your software up to date to stay safe from new threats.
Apart from external threats, take measures to safeguard your investments from your own impulses and bad decisions by setting clear goals, diversifying investments, and avoiding trying to make quick money.
4. Research is Crucial
Research is your GPS in the crypto landscape, helping you make informed decisions. Before making any investment, do your due dilligence and conduct thorough research –
- Understand the technology, team, and potential use cases of the cryptocurrencies you consider. Check out our in-depth guide on fundamental research for more on this.
- Be aware of regulatory changes and market trends.
- Learn from successful investors who attribute their success to research.
FAQ
Is crypto a good long-term investment?
Crypto can be a good long-term investment, but it comes with risks and uncertainties. Do your research, diversify your portfolio, and have a clear understanding of the specific cryptocurrencies you’re investing in. Additionally, regulatory changes can impact the crypto market, so staying informed and adaptable is key.
What is the best cryptocurrency for long-term investments?
Bitcoin is often considered a popular choice for long-term investment due to its status as the first and most popular cryptocurrency. Its limited supply, store-of-value characteristics, and widespread adoption have made it a favorite among mainstream investors.
Is crypto risky long term?
Yes, crypto investments can be risky both in the short term and long term, but the nature of the risk differs.
In the short term, crypto markets are highly volatile, making price fluctuations more frequent and unpredictable.
Long-term investments can be considered less risky in the sense that they allow investors to ride out market volatility and benefit from the overall growth trajectory of cryptocurrencies. However, long-term investments are not risk-free, as they are subject to factors like regulatory changes, technology developments, and market sentiment.
Will crypto exist in 2030?
It is highly likely that cryptocurrencies will continue to exist in 2030. The blockchain technology underpinning cryptocurrencies has already shown its potential in various industries, and governments and businesses are increasingly exploring its applications.
While the specific landscape may evolve with new regulations, technological advancements, and changing market dynamics, cryptocurrencies as a concept are expected to persist and potentially play a significant role in the future of finance and technology.