The internet is full of ‘finfluencers’ these days. Some would preach investing for the long haul, while others may quote Keynes’ famous line: “In the long run, we will all be dead”. The dilemma is real.
Do you invest for the short-term in a bid to make some money and exit, OR do you invest to safeguard your future? The good news is that you are not alone. This conundrum is responsible for dividing the experts into two different pools too. So today, we will help you take a call on this. We would also try to figure out if we chose to stay in until the race ends, which is the best cryptocurrency to invest in for the long-term.
What Are Long-term and Short-term Investments?
First things first, the long and short term is highly subjective for every individual. For example, if you are in your 20s, buying a vehicle might be short-term for you. On the other hand, saving for your child’s education is a far-fetched idea. For a person in their 50s, retirement planning would take the front seat. So depending on what stage you are at, your long and short-term investments would vary.
The bigger question here is how to pick between these durations. And what comprises each of these investment strategies?
As hinted, long-term investment is typically a decade away from your current stage. These investments should ideally consist of riskier asset classes like stocks/cryptocurrency. Why? Because usually, the more time spent in the market, the better the returns for these assets.
The idea here is very simple. Simply allow your risky investments to take the course of time. Eventually, you would be rewarded for your patience and research. We know we are not the first ones to quote this, but feel free to compare Bitcoin’s returns over the last decade with the returns this year. We’ll save you on some googling. As per the current price (25th July 2022), it has given 8000%+ returns over the past decade. ~(-)50% Year to Date (YTD).
We hope this gives you a fair idea of the significance of time in the market.
Short-term investments are made for a little less than a 5-year horizon. These investments need to be relatively safer to ensure that the market headwinds do not impact your goals. People often resort to money markets, government bonds and fixed deposits for short-term investments.
While the returns are significantly lower as compared to the other counterparts, your default mode for the short-term should be wealth preservation rather than growing your wealth.
Advantages and Disadvantages of Short-term and Long-term Investments
While long-term investment allows you to invest passively after a bout of deep research, short-term investment requires a certain level of daily commitment toward your portfolio management.
Another factor to consider here is liquidity. For the long-term, you can also pick the assets with a certain lock-in. However, for the short term, you must pick assets that can be liquidated on demand. Liquidity is a term that defines the ability of an asset to be converted into cash quickly. For e.g., real estate is a highly illiquid investment, whereas stocks are liquid.
The biggest power of long-term investments comes to the surface when you realize the compounding effects of your investment. This is not possible with your short-term endeavors.
On the flip side, short-term investments allow you to change your strategy more often as per the market conditions. This may not be possible in the long term.
Long-term and Short-term Investments in Crypto
When it comes to the duration of investment, crypto is unique when compared to its peers. The only way to invest in crypto for the short term is through trading. Since crypto is a highly volatile asset class, it is advisable to invest in it for the long term only to reap the benefits of appreciation.
For that, one may use the dollar-cost-averaging technique. This means you keep on buying periodically, irrespective of market conditions. This helps average the price of an asset in the long run as the market goes through its cyclic nature.
Apart from that, it is emotionally challenging to resist the temptation of aping into some lucrative meme coins which have jumped multiple times overnight. Therefore, a prudent investor must master the art of separating noise from the actual value of a cryptocurrency.
On the other hand, if you are well-versed in trading, the massive crypto swings can be used for your benefit. One can generate regular profits by leveraging crypto volatility. This can also work even if the markets are going down by shorting the crypto.
Best Cryptocurrency to Invest in for Long-term
Unfortunately, trading is not a piece of cake. It is a full-time job in itself to learn and master it. So it is time to find out some of the best bets for long-term investment in cryptocurrency.
There is no piece of content on the internet that would bet against Bitcoin when it comes to long-term investment in cryptocurrency. And there is some strong rationale behind it.
First of all, Bitcoin started with this pseudonymous entity called Satoshi Nakamoto. For all we know, this person may be dead by now. But Bitcoin is stronger than ever. This is a very strong indication of the fact that Bitcoin is independent of any individual. Decentralized in its true sense.
Secondly, the community around Bitcoin is insanely strong. In the past, people have tried to fiddle with the idea of Bitcoin SV, Bitcoin Cash, Litecoin, etc., but none of them worked. This means no matter how many forks are created, its value cannot be transferred to another crypto.
Third, it is often referred to as digital gold, and if Bitcoin really attains that status, it might jump leaps and bounds in its value. Why? If Bitcoin were to match the market cap of gold ($8 Trillion), it would have to reach a value of $400K (8T divided by 21M). This is 20 times its current value.
If Bitcoin is gold, Ethereum is very well the silver of the crypto market. With the first-ever attempt to leverage the underlying technology behind Bitcoin, Ethereum has already achieved a mammoth status within the cryptoverse.
Ethereum has the most decentralized applications and total value locked under its hood. This means it is a very popular choice for developers and users alike.
Ethereum Foundation is also constantly innovating and developing ways to improve user experience. The biggest example of this is ‘The Merge’, where Ethereum will move from proof-of-work to less energy-intensive proof-of-stake. This is also likely to ease the pressure on the gas fee.
Ever since Ethereum’s speed has been a cause of concern, Polygon has come to the rescue. Polygon provides multiple scaling solutions to amp up the Ethereum network’s speed. If Ethereum were to emerge as the undisputed crypto universe champion, Polygon will undoubtedly benefit from it.
4. Layer 1 Competition
Despite Ethereum’s constant attempts to plug the speed and fee issues, it has provided ample time for some competitors to creep in. These competitors are faster and cheaper and are slowly catching up. Some cryptos in this category could be Solana, Avalanche, BNB etc.
P.S – None of this is to be taken as financial advice; please Do Your Own Research (DYOR) before making any investment decision.
How to Pick Cryptos for Long-term?
If you think it is hard to invest in individual cryptos (because it is), it is better to invest in themes. This way, you can also diversify your portfolio instead of banking on a single asset. You can do this seamlessly by using Coin Sets. There is a Coin Set called Crypto Blue Chip which invests in the top 5 cryptocurrencies weighted by market capitalization. It is an ideal choice for long-term investors.
1. How long should you hold cryptocurrency?
According to a famous investment strategy called HODL (Hold on for your Dear Life!) suggests that the longer you hold your investments, the better the return on investment will be. But there is no fixed period for how long one should hold their cryptocurrency.
2. Is crypto a long or short-term investment?
It is entirely dependent on your investment goal with crypto. If you trust in the vision of crypto, you can hold it for the long term to build wealth or trade it for short-term profits.
3. Is Ethereum a good long-term investment?
ETH in 2017 was valued at $10.74 USD, which rose to $3,282.58 USD in 2022. It is also believed that after the recent Merge upgrade, its potential is likely to expand, enabling more DApps to be efficiently built on top of it.