Should you Invest for the Long Term or Short Term in Crypto? That is a question that has been plaguing people all across the global crypto community, and understandably so. History has shown long term investment in cryptos to have delivered incredible returns, basically the stuff of legends. While a closer look at the price action during the same time will also show that multiple crypto bear markets in that interim nearly wiped out the investment capital, several times. Not everybody can handle that.
Short term investing proves to be useful in those situations. It helps you get out before the market hits lows so you don’t see too much notional losses on your books and at the same time, since one can never properly time the market, you can tend to miss out major chunks of some of the largest bull runs to have ever been made.
Both work for different kinds of investors – its different strokes for different folks! In this blog, we will discuss both these types of investing in the crypto market and that will hopefully, help you understand what strategy would suit you more.
SO, WHAT IS LONG TERM CRYPTO INVESTING?
This is a strategy, or rather a school of thought in investing that suggests investment is a long term game. The general idea of long-term investment is to put money into the market to earn interest or to sell when the price appreciates above the price you acquired the asset at.
In long term crypto investing, an investor typically acquires a crypto asset to hold on to it for at least a year or more. In the crypto world, there is a term for this – HODLing – which is actually a typo meaning ‘Hold on For Dear Life’. Hence with an investment horizon of more than a year, an investor should know what they are doing and what they are investing into.
Since this involves a longer time horizon, in the context of cryptos – investors need to be aware what their crypto assets are meant to do, how trustworthy the development team is and how big their vision is. If all those three work out, the investment is surely going to give multi-bagger returns.
However, it must be known that those multi-bagger returns won’t come without bad days. There could be days, weeks or even months when the investor might have to see notional losses on their books before they break even into a profitable zone. All through those days, the investor needs to have conviction in the crypto’s future and the team’s vision. Because with those two, the price of an asset is bound to jump back.
Additional Read: Top Cryptos other than Bitcoin: By Market Cap
HOW TO DECIDE WHETHER TO INVEST IN A CRYPTO FOR THE LONG TERM?
As an investor – deciding which crypto to invest in is indeed a very difficult task. One of the primary reasons being, there are so many cryptos out there to choose from. As of this year, there are about 20,000 different cryptos in active circulation. And finding a few to invest in from such a huge pool is incredibly difficult.
Choosing methodology would also differ from investor to investor. One must try and find their own investment ‘mantra’ to abide by and choose based on that. But, all of it would simply boil down to a few crucial points. To understand those, take a look at these few questions and if as an investor you are able to answer these questions about the crypto you want to invest in, that is a good place to begin.
- What real world problem is that specific crypto trying to solve?
- More importantly, how big of a real world problem is it? Is it some minor convenience that it is trying to provide or will it transform lives or maybe even an entire industry?
- How dependable does the development team behind the crypto seem like?
- What objective is the crypto project’s whitepaper trying to focus on?
- Do enough people share your opinion about the problem that the particular crypto project is dealing with? (This can be defined by market cap – how much are other people willing to value the crypto project)
If you as an investor are able to answer these questions and are satisfied with the answers you are able to find – then the crypto project under consideration is a good one to pick up.
Also read: Crypto Investing vs Crypto Trading
HERE’S A LOOK AT A FEW LONG TERM CRYPTO INVESTMENT STRATEGIES
Okay, now that you have decided on a few crypto projects that you want to invest in for the long term – here are a few ways of how you can go about actually doing it.
HODLing is one of the simplest ways of investing in crypto for the long term. This can be executed if you have a bit of lump-sum spare cash lying around that you wouldn’t need immediately and can maybe even forget about for the next two to three years. This is the kind of money that is lying around with you after you have paid for or covered everything essential in life, from health, to everyday survival. And this should be an amount of money that you wouldn’t necessarily lose your sleep over.
If those categories are taken care of, then you can go ahead and create a portfolio of your favourite cryptos and invest in them in the way you see fit. In traditional finances, there is this strategy called – ‘coffee can investing’ – which basically means that you buy a bunch of assets that you are confident about for the future, stuff them in a coffee can and keep it in your cupboard. The objective is that you will essentially forget about it and maybe stumble upon it several years later only to find your assets have grown multifold in value.
2. A CRYPTO SYSTEMATIC INVESTMENT PLAN (SIP)
HODLing is a perfectly sound strategy but crypto market will have drawdowns on a regular basis, much like all other asset markets. And being much more volatile in nature, the drawdowns tend to be far more than other asset classes. However, this is a strategy that will help you ride through those phases of drawdown, by mitigating your downside while opening up your upside potential. It is called a ‘crypto investment plan’.
You must have certainly heard of systematic investment plans for mutual funds, but have you come across a crypto investment plan? The CIP strategy by CoinDCX lets you deposit a fixed amount towards your crypto portfolio through a convenient process that promotes discipline. You simply have to deposit an INR amount into your CoinDCX Wallet before choosing a sum that you would like to invest weekly in your favourite set of cryptos. This strategy is simple and lets you make the best of the crypto market, all through its ups and downs.
WHY INVEST FOR THE LONG TERM IN A VOLATILE MARKET?
The main advantage of investing for the long term is the relationship between volatility and time. Investments held for longer periods tend to exhibit significantly lower volatility than those held for shorter periods. Hence, the longer you invest, the more likely you will be able to weather low market periods.
Additional Read: Volatile Crypto Market Survival Guide
IS LONG TERM INVESTMENT A GOOD STRATEGY WHEN THE MARKET DIPS?
Long term investment is the style of investment where market dips or market rallies don’t really tend of matter. You will hold on to your chosen cryptos and won’t sell them until the point you think those cryptos are being valued in the market more than what you think the crypto actually deserves at that point in time.
So until that happens, you will have the conviction to hold on to your cryptos no matter what happens in the market.
NOW, WHAT IS SHORT TERM CRYPTO INVESTING?
Short term crypto investment is essentially trading. You as a trader are only in the market to speculate on the prices and profit off of the price differentials. You enter the market at a particular price, believing that it would move in a certain direction and if it moves in the direction of your thinking, you will make a profit, or else you will exit the market after taking a loss.
This kind of investment, or rather trading involves very high number of transaction, entering and exiting the market whenever opportunities present themselves in front of you to exploit.
WHAT ARE THE VARIOUS CRYPTO TRADING STRATEGIES?
While the crypto space is achieving great feats due to the mass adoption of the asset class, there are also strategies that crypto experts go by for a better chance to trade safely while enjoying their trading journey!
1. Day Trading
The most common crypto trading strategy; Day Trading involves taking positions and exiting on the same day. This mostly requires keeping constant tabs on the crypto market and enjoying instant profits from the assets.
2. Range Trading
Market players often rely on the support and resistance levels given out by experienced analysts. ‘Resistance’ in crypto means the point up to which the price of a certain token may rise. In contrast, ‘Support’ is the opposite. It indicates a level below which a crypto price is not supposed to fall.
3. High-Frequency Trading (HFT)
This is an algorithmic trading strategy usually used by quant traders. This strategy is known for developing algorithms and trading bots that help traders quickly enter and exit a crypto asset.
LONG TERM VS SHORT TERM: WHICH INVESTMENT STYLE IS BETTER FOR CRYPTO?
There are a few aspects that one needs to understand before deciding which of the two investment styles an investor should go for. As mentioned at the very beginning of the article, it’s different strokes for different folks. Short term, high frequency trading can give outstanding ROIs on your capital while a gradual long term investment can give you safer, more calmer returns over a long period of time.
To understand it better, let us look at a chart describing the characteristics of short term versus long term investing.
|Investment period||Long-Term Horizon||Short-Term Horizon|
|Type of Analysis||Fundamental analysis||Technical analysis|
So, an investor needs to understand what kind of investment style is more suitable and should proceed with that.
CRYPTO INVESTING LONG TERM VS SHORT TERM:
The biggest benefit of a long term investment strategy is that the investor can be in a reasonably more peaceful state of mind because one doesn’t need to look at the fluctuating prices of the crypto assets on a daily basis. Rather, one only has to keep track of the utility of the crypto project and the team leading. And that can easily be a quarterly or a half-yearly activity to perform to track one’s investments.
On the other hand, the biggest advantage of short term investment strategy is that one can prevent themselves from seeing the extreme drawdowns the crypto market can bring about. Short term investors have strategic stop losses at place which pull them out of the market whenever prices begin to crash, or go against them. Thus, one can be saved from those pitfalls and even have cash left over to buy the dips to take advantages of the rally the come immediately afterward.
The biggest disadvantage of long term investing is the fact that investors will have to sit through days, weeks, months and maybe even years of drawdown and crypto winters, holding on to their cryptos with conviction even if they have lost over 70-80% of their cost price values. That is something very difficult to do, but if you can – this is the most reliable way to go.
The biggest disadvantage of short term trading include is the high frequency of trading. Trading involves a cost that is paid to exchanges facilitating the trading – hence that tends to cut into the profits one makes from the trading. Also, short term trading requires daily attention at charts and tickers, and a thorough understanding of technical analysis – which may take years to properly learn and execute with live money in the markets.
TIPS FOR NEW CRYPTO INVESTORS
The most basic fundamental tip for new investors is that one must first carefully identify what kind of investment style suits them and then go ahead with it. Unless they are able to do so, they may have to burn their fingers in the market before realising their true nature. Consultation with financial and investment experts is also a must for all new crypto investors – to better understand how their hard-earned capital would be affected in the market.
In conclusion, we can agree that every human being is different and one needs to identify what kind of investment style they are comfortable with. Rest assured, both short term and long term investment strategies can be used to successfully create wealth for an individual.
WHERE TO START INVESTING OR TRADING IN CRYPTO
The crypto market is volatile but also very exciting with the potential for big future gains. As you tread with the powered intention to drive potential returns with crypto, CoinDCX is your go-to app. It lets you invest or trade in crypto within a safe and simple environment. To begin, simply,
- Download the CoinDCX App and sign up for free
- Deposit an INR amount into your CoinDCX Wallet
- Trade or invest to purchase the crypto asset of your choice
Simple? Get started on your crypto journey with CoinDCX today and fortify your financial goals!
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. In case you have any queries, write to [email protected].
The above information represent the independent views of Primestack Pte. Ltd, Neblio Technologies Pvt. Ltd, and/or their affiliate entities and are for informational & educational purposes only. The content, information or data provided above is not an offer, or solicitation of an offer, to invest in, or to buy or sell any interest or shares, virtual digital assets/ crypto products or securities, or to participate in any investment or trading strategy. Any statement or communication made above shall not be treated as a legal, financial, investment or tax advice by the reader. The calculations, data, risk-return formulations, performance or market capitalization indicators captured above are based on the independent data sourcing including collation of public information and/or analysis performed by analysts, advisors or employees of Primestack Pte. Ltd/ Neblio Technologies Pvt. Ltd and/or their affiliate companies and/or any third party. Past performance is not indicative of any future results. The reader(s) are hereby advised to consult their financial/ legal/ tax advisor(s) before making any investment.