Investing is a risky business, but making your money work for you is extremely rewarding over time. The cryptocurrency space affords itself large swings in both directions, presenting both incredible gains and crushing losses as plausible outcomes.
In this guide we’ll focus on 13 questions to help you gain perspective on what it takes to invest in cryptocurrency for long-term gain.
Investing in Cryptocurrency for Long-Term Gain
Compared to traditional stocks, cryptocurrencies are extremely volatile and require investors to prepare themselves for all kinds of scenarios. Panic selling and FOMO buying don’t always help in the long-run, and with how jagged the market movements are, it can help smooth things out by looking at the bigger picture.
Let’s dive in…
Will Bitcoin appreciate long-term?
Bitcoin has a fixed supply cap of 21 million BTC, which is rewarded to miners for securing the network. Every four years or so, the supply rate is halved, making BTC more and more scarce with time.
BTC isn’t the only cryptocurrency with this kind of periodic supply rate reduction. Various other altcoins also follow a depreciating supply schedule. Since only a limited number of BTC will ever exist, even lost coins contribute to the asset’s scarcity.
Cryptocurrencies offer an impressive value proposition in that you can invest small amounts and make huge profits, but that doesn’t mean there isn’t any risk involved. In fact, most cryptocurrency investors minimize risk by diversifying their portfolios into multiple assets.
See our Bitcoin price page for more on bitcoin.
Should I invest in altcoins?
Grayscale Investments, one of the world’s most prominent institutional investors in the blockchain arena, has a portfolio containing many cryptocurrencies, including Bitcoin, Ethereum, Litecoin, Stellar, and XRP, among others.
Its digital assets portfolio is primarily occupied by Bitcoin, which accounts for over $6 billion of the $7.3 billion total AUM, but owning a mix of BTC and other altcoins is a solid place to start. There are far more people investing large amounts into the world’s first cryptocurrency than altcoins like Litecoin and XRP.
When an altcoin crashes, gains from Bitcoin or other altcoins may save your portfolio’s worth. In fact, many altcoin investors move funds into Bitcoin once it starts to rally, pushing Bitcoin even further up while altcoins fall in value.
How risky is it?
The crypto market is infamously unpredictable and creates millionaires just as often as it bankrupts. There’s no objectively risk-free way to invest in anything, and only intuition and experience will help you walk away victorious. How much you should invest depends on how much you’re willing to lose, and that should give you a fair idea about the level of risk involved in entering the cryptocurrency space.
Unlike the traditional stock market, there are no centralized entities to hold responsible here. This makes the blockchain industry perfect for running scams, and it’s crucial to only invest in projects that you think are genuinely valuable.
Just because an asset rises in value doesn’t necessarily mean it’s worth anything. From fraudulent ICOs to blatant pump and dump schemes, there’s a lot to learn to understand crypto markets better. You can’t capitalize on a project if you can’t identify its value.
Where can I buy cryptocurrencies?
Digital assets can be bought, sold, and in some cases, stored on various cryptocurrency exchanges on the web. The two main types are centralized and decentralized exchanges.
- The simple approach: Centralized exchanges function in the same way that traditional exchanges facilitate trading. An orderbook is used to collect bid and ask data and match traders in real-time. The price of an asset is calculated from the supply/demand ratio on the orderbook.
- An alternative technical approach: Decentralized exchanges have gone through multiple iterations over the last decade. Attempts to use an orderbook system with DEXs have resulted in slow exchanges with very little liquidity. The lack of incentives for market makers. With the introduction of Automated Market Makers (AMMs), modern DEXs are posing a threat to some established CEXs. Instead of using an orderbook to track bid/ask information, current DEXs lock pairs of tokens in liquidity pools. The ratio of the tokens in the pool determines their price, and liquidity providers are rewarded for staking and contributing to the pool’s liquidity.
Kriptomat provides a mobile app and desktop account with a remarkably easy-to-use interface for buying, selling and storing cryptocurrency securely.
What kind of exchange should I use?
There are pros and cons to both kinds of exchanges. Unlike DEXs, centralized exchanges are reliably fast, with multiple teams of dedicated experts working to optimize the platform for the best possible experience.
Additionally, while CEXs are bigger targets for hacks, they’re also more likely to reimburse you for losses than an exchange with no central authority. Most CEXs also have built-in on-ramps to exchange fiat currency for crypto, but some decentralized exchanges offer this feature too.
Where should I store my digital assets?
Another critical aspect of long-term investing in crypto is storage. Though exchange wallets are relatively secure, leaving your assets online is a risk that’s quite simple to mitigate. Whether it’s a spare phone you have lying around or a dedicated hardware wallet, storing your assets offline is a lot more secure and pretty easy to set up.
Make sure to store your wallet address’ seed phrase, so you always have access to your tokens. Losing this information can lead to depreciating an entire portfolio because your assets are inaccessible.
Kriptomat cryptocurrency wallets make this process as easy as possible, while maintaining modern standards in security via password protection and 2-Factor Authentication.
What kind of cryptocurrencies are there?
Among the various altcoins available for purchase, stablecoins offer a cryptocurrency’s versatility with a fiat currency’s stability. For example, Tether (USDT) is a popular stablecoin with its value pegged to the U.S. dollar. This lets traders exit or enter markets at a moment’s notice without waiting for fiat-to-crypto conversions.
The data suggests that there are over 5,000 altcoins in existence, but not all of them are worth your money, and most of them probably aren’t worth your time. However, the dollar value of an altcoin isn’t always proportional to how valuable it is.
Many utility tokens are more useful for the services they enable than their inherent value. It’s easy to get lost in technical indicators and trend lines, but especially in the case of early projects, it’s crucial to only invest in genuine projects that can provide value to the market.
Impossible claims are often just that – impossible. Do your own research before devoting any part of your portfolio to cryptocurrencies, and stay away from anything that even remotely seems like a multi-level marketing scheme.
Visit the cryptocurrency prices page to see all coins currently available from a Kriptomat account.
What cryptocurrencies should I invest in long-term?
For long-term investments, many customers choose to stick to the top coins by market capitalization, such as BTC, XRP and ETH and others as shown on the cryptocurrency prices table. This will give you a good idea of what the community generally thinks is most valuable and is an excellent way to dip your feet into the world of blockchain technology.
Some new projects will enter the top rankings just as fast as they leave, and this testing by the market can be useful in determining what’s garbage and what’s precious. It can be tempting to invest large amounts into high-risk assets, but this can be crippling, especially for long-term investors.
Consistent growth over time shows how much an asset means to the market. It’s a fast-paced industry, but it can be worthwhile to keep up.
How do I know if a cryptocurrency is worth investing in?
Investing in anything begs analysis. For long-term ventures, investors use three main methods to gauge the upside and risk of a particular asset. Fundamental analysis evaluates a token or project’s intrinsic value in the context of the current market and its outlook.
Most projects publish a whitepaper before a token sale, and studying this document can present more profound insight into what the asset offers. Make sure to review economic factors and other industry-specific events like Bitcoin’s supply halving every four years.
What other forms of analysis can I use?
Another popular method of evaluation is through technical analysis. This involves analyzing historical price chart data to discover patterns in the market’s behavior. This can help understand trader behavior, and metrics like daily trading volume, prominent support and resistance levels, and certain technical indicators can paint a broader picture of its prospective potential.
Though technical analysis is mostly reserved for short-term projections, it’s possible to learn a lot about how it reacts to external events by outlining patterns in the asset’s price chart. This can be particularly beneficial in the long-term and, combined with fundamental analysis, can provide a well-rounded idea of a project’s value.
Through quantitative analysis, investors can gauge how well an asset is likely to perform based on historical data. While past performance is never exclusively indicative of future appreciation, it’s crucial to learn more about not just the token, but the market that’s investing in it.
How can I profit from cryptocurrencies?
The point of any investment is to make you money, and cryptocurrency investments can make your money work in more ways than one. Created as a solution to the scalability and energy consumption issues with Bitcoin’s Proof-of-Work algorithm, Proof-of-Stake has crept into many blockchain-based projects over the last couple of years.
Instead of rewarding miners for running computations to validate transactions, Proof-of-Stake rewards stakers for providing liquidity by locking tokens up into a smart contract. Depending on the token, rewards range from variable APR on the staked token to entirely new tokens that can be staked further.
Decentralized Finance (DeFi) is a hotbed for staking protocols, and hacks in the last year have led to millions drained from various DeFi platforms – not exactly where you’d want your life savings. Some staking implementations allow network participants to delegate their stake to validator nodes, striking a balance between security and risk.
Others offer rewards for merely holding assets in their wallets for fixed periods. This ability to stake offline from a hardware wallet makes things much more enticing for long-term investors, providing security from malicious actors on the network.
The most sensible approach to profiting long-term for the majority of people may be to accumulate a diversified portfolio of cryptocurrencies and re-balance the portfolio periodically. A topic we will explore in future guides.
Is staking more profitable than mining?
Staking isn’t just beneficial for individual investors and has led to a wave of people entering the crypto space, lowering the barrier for entry from needing high-end mining machines to an ordinary hardware wallet.
Though much of the cryptocurrency mining industry has moved to sustainable energy sources, Proof-of-Stake is far more energy-efficient and environmentally friendly.
It also makes 51% attacks much harder to execute due to the sheer cost of attaining that much authority. Miners also have to deal with the value of their machines’ depreciation over time, periodic hardware upgrades and accommodating other operational costs of mining the network.
Anyone new to cryptocurrency has a safe approach to becoming involved with the complex topic of ‘staking and rewards’ via Kriptomat’s new Savings Account feature.
What is the future of cryptocurrencies?
Cryptocurrency investments can see impressive growth in short periods, but it’s essential to have a thorough understanding of how a project works before risking any capital. Short-term investments may seem like an easy way to make a quick buck, but trading on briefer time scales requires experience, intuition, and nuance.
Volatile markets can spark all kinds of emotions in inexperienced traders, and what might seem like the right decision in the moment can often turn out detrimental in the grand scheme of things. Blockchain takes control away from centralized institutions and empowers the individual investor. Bitcoin gave us decentralized money, and altcoins gave us a decentralized economy.
The industry may be young, but it’s already on the road to mainstream adoption. As more people hop on board, cryptocurrencies may soon become less of an investment in blockchain and more of an investment in the future economy.