Success in cryptocurrency investing is synonymous with having and executing a long-term plan that adequately addresses risk management factors like volatility.
Like traditional stocks, long-term crypto investment strategies help maximize returns and minimize losses even in the most turbulent conditions. As an added plus, a solid plan also checks your emotions at the door, making sound decisions more likely.
Whether you’re new to crypto investing or not, within this guide, you’ll discover a few tried-and-true investment strategies to maintain and grow a healthy crypto portfolio.
What is long-term crypto investing?
Long-term investing generally involves holding a cryptocurrency for at least one year.
However, the crypto market has characteristic volatility that makes swings more pronounced (at times) than in traditional asset markets. Given this added dimension of unpredictability, holding crypto long-term generally equates to a multi-year period rather than the usual one year.
Holding crypto long-term provides a broader timeframe that allows investors to watch the industry (and price) mature and grow. More prolonged exposure also means you’ll absorb short-term price increases and decreases while enjoying the macro trend.
There are several time-tested long-term crypto investing strategies today, but which are the best? Let’s look at the seven most successful long-term strategies emphasizing risk management.
In 2013 during a significant Bitcoin crash, a user on the BitcoinTalk forum told their fellow Bitcoin investors, “I am HODLING.”
Whether it was a typo for “holding” or not — the user made clear that they were not selling. After this historic declaration, crypto investors enshrined HODL as a meme and investment strategy.
The logic behind HODL is simple: buy the cryptocurrency of your choice and Hold On for Dear Life when the market turns south. Similarly, HODL can keep you from selling too soon when prices rise. The HODL mindset is, therefore, an excellent tool for steadying your hand and viewing price action with greater objectivity.
Dollar-cost averaging is a common method among stock market investors to deploy capital regularly over a set period to reduce risk.
You know how important timing is if you’ve ever invested in stocks. From one day to the next, the value of your stocks and bonds can increase or decrease after a quarterly earnings announcement.
Compared to traditional stocks, crypto prices may experience more significant price movements in either direction, making the DCA method an invaluable strategy for long-term investors.
Check out our guide to Dollar Cost Averaging (DCA)
To DCA in crypto, you deploy a set amount of fiat at a predefined weekly/monthly/yearly period. For example, you might buy $500 worth of ETH on the 15th of every month for an entire year.
The DCA strategy spreads your cost basis over time to capture a wide range of price points. As the saying goes, you can’t time the market — so, instead of trying to time the bottom, use the DCA method to gain exposure at the bottom, top, middle, and elsewhere, all of which adds up to a relatively safe cost basis.
Stake your crypto
You may earn dividends as a corporation shareholder via brokerage firms or a 401(k) plan.
Dividends come in the form of quarterly cash rewards or reinvested stocks when a company earns a profit. Not all corporations offer dividends, let alone high percentages unless you own a large chunk of the corporation.
Staking your crypto is similar to dividend-paying stocks because it allows you to earn rewards based on your holdings. However, the difference between staking and dividend-earning stocks is that cryptocurrency does not need to make a profit to generate rewards.
The rewards from staking crypto are typically higher than dividend-paying stocks, making the staking method a relatively easy way to generate passive income on top of your crypto portfolio.
Buy the dip
Contrarian investing was cemented into stock trading 101 when Baron Rothschild recommended that the time to buy is when there’s blood in the streets.
Although the quote appears metaphorical today, Baron Rothschild made a killing when he bought stocks during their low after the bloody battle of Waterloo in 1815. Ultimately, Rothschild’s strategy is to buy assets (stocks, bonds, or ETFs) when significant price declines occur due to widespread fear.
Rothschild's advice echoes across time in the world of cryptocurrencies, telling you to buy the dip (BTD) during market declines. Buying the dip is exactly what it sounds like — buying more crypto when prices pull back. This may sound counter-intuitive, but there’s a method to the madness.
Timing the bottom, or the market for that matter is impossible. But being at the ready with additional buying power when significant intraday price drops occur (somewhere in the neighborhood of -15% declines) tends to pay dividends if you have a long investment horizon.
Hedge your crypto portfolio
Prudent investors seek protection from eventual market fluctuations by hedging their stock portfolio.
Stock investors hedge by investing in derivatives, such as options or futures. Another method is to sell a stock and have cash reserves waiting on the sideline for an eventual market correction.
Hedging is a bet against your current position. Although hedging sounds like an unprofitable technique, it decreases risk and is a long-term investment strategy among Wall Street’s best hedge funds.
Being all in crypto is a tedious position that feels glorious during pumps (prices rise) and terrifying during dumps (price decline). To avoid these extremes, successful long-term crypto investors hedge their crypto portfolios. Hedging in crypto means allocating a sum of fiat or stablecoins on the sideline.
Furthermore, as an accredited investor, you can harness derivative tools on crypto exchanges to access options or futures contracts to hedge your crypto portfolio.
Beware of FUD and DYOR
The most successful long-term crypto (and stock) investors avoid FUD (fear, uncertainty, and doubt) at all costs. FUD is the bane of all investors and is typically the fuel that feeds capitulation events during significant sell-offs.
Research each of your crypto investments diligently before buying. Crypto investors call this DYOR or Do Your Own Research. It means you are responsible for your investments, not influencers telling you what to buy or sell.
Staying away from FUD helps you avoid sensationalism — especially when coupled with your strong knowledge about crypto assets powered by ample research.
Use an automated crypto investment advisor
Investing in crypto can often feel like a full-time job. After all, the digital asset market is global and runs 24/7. So, between doing your own research, watching the charts, and checking in on your investments, it’ll be surprising if you have much time outside of crypto, depending on your involvement and interest in the market.
That’s why you might prefer an automated crypto investment advisor for long-term crypto investing. Automated crypto investment advisors offer a wide range of services, such as portfolio rebalancing, baskets of top-performing assets, and allow you to tailor-fit your risk tolerance and financial goals in one convenient location.
Even if you’re keen on only sticking with one asset like Bitcoin, automated crypto investment platforms can help you make the right decisions at the right time in a reasonably hands-off manner. Not having to keep track of the market’s every move is likely a boon for anyone with a full-time job, family, or other significant commitments that have made crypto investing seem undoable.
Shrimpy is providing an endorsement of Shrimpy Advisory. Shrimpy and Shrimpy Advisory are affiliated companies. A conflict of interest exists because Shrimpy Advisory will be compensated if a client utilizes Shrimpy Advisory’s services.