Observations and strategies for long-term crypto investing

Crypto winter

If you thought that investing in crypto was a walk in the park, you’re wrong. Crypto is highly volatile – meaning that the prices change in both directions (up or down). In extreme cases, you gain exuberant returns or even lose your investment in a few hours. Investing in stocks (shares) or bonds (loans to companies or Governments) is considered less volatile.

I’m writing this article amidst a lot of global uncertainty such as a potential invasion of Ukraine by Russia, above-average increases in inflation, a possible global recession, increase in interest rates by the Federal Reserve, etc.

Every challenge is an opportunity. You can take advantage of these uncertain times to get a good return on investment.

Many people are impatient and want to get rich as fast as possible. However, the opposite happens. They end up losing hard-earned cash in reckless investing.

I’ve been reading and learning about cryptocurrencies since 2013. I’ve based the contents of this article on my experience. I guess I’ve encountered at least four or five market crashes.

My observations towards crypto investing revolve around my lifestyle and schedule, which may mirror yours, especially if you have other commitments like a full-time job.

1) Crypto exchanges vs CFD exchanges

Crypto exchange
Source: Pixabay

Crypto exchanges allow you to hold the “actual” cryptocurrency such as Bitcoin, Ether, Cardano, etc… These will enable you to transfer your crypto from one exchange to another, from one wallet address to another, or even a hardware wallet. One makes money by buying at a low price and selling it higher than the initial purchase price.

Such exchanges include Coinbase, Kraken, Crypto.com and Binance.

CFD stand for contract for difference. It allows someone to buy a “contract”, not the actual crypto but a representation. When trading stocks and commodities, e.g. gold, oil, silver, etc., these are bought through CFDs.

For example, an oil trader won’t be owning oil when he purchases it. He will just be holding a contract stating that he bought oil at a specific price. 

Unlike crypto exchanges, a trader in a CFD exchange can make money in two ways: going long – meaning buying at a low price and selling it at a higher price. The trader can also make money by going short, meaning the trader makes money when the value goes below the purchase price.

CFD platforms include eToro, Robinhood and Revolut.

I prefer to buy my cryptocurrencies from a cryptocurrency exchange than a CFD one. 

Besides having a trading platform, a crypto exchange would need to ensure that the listed coin is secure enough to be traded on its platform. A flaw in the cryptocurrency’s network may cause theft from the users’ funds. A cryptocurrency exchange would have stricter IT controls than a CFD. The cryptocurrency exchange has its systems connected to various blockchains or distributed ledgers. Thus the crypto exchange would need to adhere to more stringent rules.

2) “Get rich slowly.”

Gradual growth
Source: Pixabay

I mention the word ‘investing’ as opposed to ‘trading’. Both terms require buying and selling. The difference lies in the time taken when someone purchases a cryptocurrency, up till when the person sells. 

Trading usually takes in the short term, e.g. a few seconds or minutes (such as in high-frequency trading), days or weeks. Investing can generally last longer, such as a year or more. 

I only invest in cryptocurrencies. My timeframe is usually five years or more. In my opinion, this has plenty of benefits. 

3) Buying value cryptocurrencies

Value and power
Source: Pixabay

Practically speaking, the cryptocurrency industry has been in existence since 2008 when an individual or a group of individuals disguised under the name of Satoshi Nakamoto created Bitcoin. There are other virtual currencies before Bitcoin. However, they only existed in close systems like on computer games, and someone holding them couldn’t trade for money.

Bitcoin single-handedly created the cryptocurrency industry. Others like Ethereum, Cardano, Litecoin, etc., followed.

Investing instead of trading requires one to take fewer decisions when to buy or sell, but they must be of higher quality. Keep in mind that you’re going to hold to the cryptocurrency you’re going to choose for at least one year or five, in my case. 

It would be best to familiarise yourself with the cryptocurrency of your choice. One requires to make a thorough study. Investing goes beyond its price, and the percentage increase or decreases next to the price. Long-term investing requires getting to know the coin as much as possible, such as reading what the project does, the people behind the project, their reputation, how long it has been in existence, negative press, achievements, etc.

4) Working product

Working product
Source: Pixabay

Most cryptocurrencies have their dedicated website, and you can read their white paper. A white paper usually discusses what the project behind the cryptocurrency tries to solve—for example, Bitcoin. Bitcoin’s purpose was to find a way to give people financial freedom by circumventing banks. Satoshi Nakamoto blamed banks for the 2008 economic meltdown, and people had to pay for the banks’ shortcomings through bailouts.

Bitcoin may refer to both the cryptocurrency and the blockchain called Bitcoin. Ether is the name of the cryptocurrency, while Ethereum is the network’s name.

If a white paper doesn’t provide the purpose of the cryptocurrency in simple terms, then stay away.

While a whitepaper can be technical paper, most have a road map. The roadmap gives a histogram of past milestones and sometimes of futuristic goals. As an analogy, a white paper is the “instructions manual” of what a specific project relating to cryptocurrency does or what it proposes to do. The roadmap is like the project’s progress bar.

There are usually three types of cryptocurrency roadmaps. Those with:

  1. a roadmap but without a project – stay away;
  2. a working product but hasn’t updated its roadmap in a while (e.g. Bitcoin) – I may consider;
  3. a working product with a roadmap that shows past milestones and futuristic improvements (e.g. Etheruem and Cardano) – worth looking at.

I don’t recommend investing in coins that don’t have a fully working system, like, for example, a distributed ledger technology (aka blockchain). It’s like buying fish in the sea.

Some blockchains, such as Ethereum and Cardano, are always looking for how to improve their blockchains. 

5) Evolutionary versus static

Source: Pixabay

In 2021, many people like Elon Musk argued that the Bitcoin network consumed more electricity than whole countries, accelerating global warming problems. 

The market ditched Bitcoin for other green cryptocurrencies like Cardano. Such a move saw the price of Cardano increase by almost 100% (double its value from its current price). Other projects like Ethereum switched to methods, like proof of stake, to lower the negative impact on the environment. 

Bitcoin recovered sometime after the backlash as mining rigs moved from coal to green energy.

6) There is more than one king

New king
Source: Pixabay

Bitcoin is considered the market leader in the cryptocurrency world, and it was the first to gain media attention. However, other coins have outperformed Bitcoin in terms of price. 

For example, a $100 investment to become $200 would require Bitcoin to increase from $30,000 per coin to $60,000 per coin. A $100 investment to become $200 would require Cardano to grow from $1 per coin to $2 per coin.

While both investments show a 100% increase (double the original price), it would be easier for Cardano to double in price than for Bitcoin to do the same. The main reason is that Cardano has fewer decimal places (100) to increase from $1 to $2, while Bitcoin needs more decimal places (3 million) to grow from $30,000 to $60,000. 

The same is true in the opposite direction. It would be faster for Cardano to lose 50% of its value than for Bitcoin to do the same.

One of my key performance indicators is to outperform Bitcoin’s price. 

7) Timing

Source: Pixabay

The best time to invest in bitcoin was yesterday — the second-best time to allocate is today

Meltem Demirors

I can’t entirely agree with this statement. 

Have you ever been to a restaurant, and a large group orders different plates? Skilful kitchen staff will serve food to its clients simultaneously. An unprepared kitchen will feed its clients its dishes staggered, which may cause complaints from the clients. 

The same applies to buying crypto. Timing is key. What goes up must come down, and what goes should go up.

Warren Buffet, the father of value investing, said, “Be fearful when others are greedy and greedy when others are fearful.”

– FOMOing

FOMO stands for Fear of Missing Out. Most people tend to buy specific cryptocurrencies when the price reaches an all-time high. They fear that if prices increase, they will lose out and buy. They feel that they will miss the bus when it has already left. 

There is a tendency that when prices are too high, people buy; however, the higher the price goes, the higher the probability that it will reach a time high.

– Catching a falling knife

Crypto is famous for catchphrases. One of them is “buy the dip”. It means buying crypto when the prices are on their way down. You’ll never know when the price will bottom out. It would be wiser to buy a cryptocurrency once the price has bottomed and started increasing than to buy it and the price continues falling. So I’d rather wait and be convinced that the market is recovering. 

– Technical analysis

I refrain from using technical analysis and indicators that complicate charts too often. Technical analysis is a method of interpreting the price and the time of a cryptocurrency over a while. The technique is more associated with day trading.

Technical analysis looks at past events. Sometimes it may take a while to react to a piece of news or decide if the news item is positive or negative. The method uses price (open, high, low, close), volume and time data points. 

I only use technical analysis to confirm entry points, i.e. what I consider the right price to purchase the asset. I use the daily charts and use the Relative Strenght Index (RSI), linear regression and the Supertrend indicator.

8) Bitcoin can be an indicator for altcoins

Source: Pixabay

Bitcoin is a cryptocurrency. Altcoins or alternative coins are cryptocurrencies that aren’t Bitcoin. 

Established cryptocurrency exchanges allow users to buy Bitcoin using Government-issued money such as the US Dollar, British Pound, and the Euro. These currencies are known as fiat.

There can be instances where one would like to buy a cryptocurrency that isn’t available on the current exchange. The prospective buyer will require to buy it from another cryptocurrency exchange that doesn’t accept fiat. 

Another instance is if the currency doesn’t offer that cryptocurrency-fiat pair. For example, both Coinbase and Kraken take USD pairs. However, Coinbase doesn’t offer SAND/USD pairs.

The buyer will need to perform three transactions. The first step requires the person to convert fiat to Bitcoin (first transaction). The buyer must then transfer the Bitcoin from the first exchange to the second exchange (second transaction) through the Bitcoin blockchain. The third and final transaction entails converting the Bitcoin into the other cryptocurrency, e.g. Bitcoin to IOTA (which isn’t present on Coinbase at the moment) or Bitcoin to Sand.

The above is essential to understand. The important aspect isn’t what one needs to do but how money flows, i.e., transactions. Money is flowing from fiat to Bitcoin, and this will cause the price of Bitcoin to increase. Once Bitcoin is purchased, it is transferred onto the exchange and pushes altcoins’ price to grow. 

In simple terms, an initial increase in the price of Bitcoin may lead to a rise in the price of altcoins.

However, plenty of exchanges offers what are known as stable coins. Two of these coins are Tether and USD Coin. One Tether is equivalent to $1. Stable coins never increase or decrease; hence stable coins. 

Unlike Bitcoin, stable coins aren’t be monitored through price movement since their prices never change. Stable coins are monitored by observing their circulating supply or volume. An increase in volume may imply an increase in the prices of Bitcoins and altcoins.

There may be exchanges that may not accept fiat but may accept stable coins. A stable currency reduces the need for using Bitcoin as an intermediary coin to buy altcoins, in the situation described above. 

However, there are drawbacks to using stable coin volumes to measure money flow as most traders may convert their Bitcoin and altcoin holdings into a regular, without the need to convert it to fiat.

Given a choice, I’d instead follow the price of Bitcoin, even though stable coins made it more challenging. 

Besides Bitcoin and stable coins, secondary exchanges accept incoming altcoin transfers and trading pairs denominated in Cardano, e.g. IOTA-ADA. The latter has lower transaction fees and faster transfers between crypto exchanges.

I use the method to see the money flow. I refrain from buying coins using the three-step method above, i.e. sending Bitcoin and other altcoins from third-party exchanges. Unless I firmly believe that the process has good fundamentals and a better return. 

Such a strategy may save you time. Remember that not every cryptocurrency listed on a fiat-based exchange is worth buying. However, this process will help you filter. 

Remember that overall, you need to take a few quality decisions.

9) Reputation of crypto exchanges

Integrity and trust
Source: Pixabay

Banking is perhaps one of the most heavily regulated industries, requiring most of their partners to have strict licencing agreements before allowing exchanges to open bank accounts. Crypto exchanges that accept fiat currencies like Coinbase and Kraken enable clients to fund their accounts through banks. 

Regulations vary from country or economic region to another, like the US and the EU. The US regulations vary from state to state, and they range from a state level to a national level. New York may have its own rules and regulations, while California may have its own. 

EU laws tend to be similar as they follow the same framework. However, they may diverge at the frills. 

It would be in the exchange’s best interest to do the necessary checks on the teams behind the cryptocurrency project. A misdemeanour on a project’s end could cause the crypto exchange to lose its licence and banking relationship.

The more licenses the exchange has, the higher I consider the likelihood of buying cryptocurrencies listed on those exchanges. Licencing by regulators acts as a filter when deciding to invest in a cryptocurrency.  

10) Be wary of one-hit wonders

Once upon a time
Source: Pixabay

Have you remembered a song and wondered what happened to the singer or band after five years from the piece you just heard? 

One-hit wonders in the music industry are artists with one or a few songs that reached the top 10 and vanished. While music houses may still hold the rights to the song and still generate money from royalties, the cryptocurrency industry has its share. The cryptocurrency is more brutal and short-lived. One coin that comes to mind is Bitconnect.

Another project that comes to mind is Doge. Doge is a meme cryptocurrency. The cryptocurrency is famous, thanks to Elon Musk. While this has made some people wealthy, even millionaires, I don’t see any fundamentals. 

Elon’s fanboys bought it because it’s his preferred currency. There were plenty of occasions where Elon affected the price of Doge in both directions due to his tweets or mentions on television shows. 

Even though Elon has affected the price of Bitcoin, in the same manner, I believe that Bitcoin has better fundamentals.

11) Ethereum killers

Bitcoin king
Source: Pixabay

Have you heard of Web 3.0? Companies like Google, Microsoft, Facebook, etc., own the internet making it centralized. Anytime there is a server outage, or a hack, part of the internet will be inaccessible for millions of people. Such scenarios raise the question of censorship. 

Any government may eventually subpoena a company to shut down any website they want to instil oppression.

Web 3.0 wants to solve this problem. It aims to host the internet the blockchain. It will make it difficult for the government to shut down the internet, especially in totalitarian countries. The only solution would be to turn off the power in every household.

Potential contenders for the next iteration of the world wide web are Ethereum and Cardano.

Network fees are the cost of transferring Ether (the currency) from one network to another. Critics often cite the Ethereum network is slow and charges high network fees. Excessive network fees have caught the attention of Non-Fungible Tokens (NFTs) buyers. 

Some say that Solana is the new Ethereum killer. I doubt this. Solana has managed to steal the Ethereums spotlight in the NFT field due to its high network speed and low network fees.

During the past years, I came across projects dubbed as Ethereum killers. All promising cheaper network fees and faster transaction times. Such examples include EOS, Tron and many more. However, the closest project that may likely compete with Ethereum is Cardano.

I liken them to Operating system wars in the 90s – Apple vs Microsoft and Apple’s iOS vs Google’s Android.

12) Look into the future

What's next?
Source: Pixabay

Bitcoin was the precursor to other cryptocurrencies. However, it stops at being a medium of exchange. Other blockchains like Ethereum and Cardano evolve into the next World Wide Web infrastructure.

Besides Web 3.0, the following big things with cryptocurrencies are Non-Fungible Tokens (NFTs) and the Metaverse. 

– NFTs

NFTs are a way to authenticate digital asset ownership such as graphics and even music. The price tags associated with these assets could go up to thousands and millions of dollars. Some people who have bought or sold NFTs include Snoop Dogg, Eminem and Melania Trump. 

Ethereum and Solana are the most known cryptocurrencies used to trade NFTs. Besides utilizing the coin to buy NFTs, the digital assets can be traced to their owners and stored on the blockchain.

– Metaverse

The metaverse is a technology that involves technologies like augmented reality and machine learning. 

The metaverse is associated with one wearing a headset to immerse oneself into virtual reality—a game like a world. Facebook popularised the metaverse when it rebranded itself to Meta (short for metaverse). Meta became the holding company, and Facebook became an umbrella company. The same happened to other companies previously reported to Facebook like Whatsapp, Instagram and Oculus. 

Facebook claims that the rebranding is in line with the companies vision – a leader in the metaverse. However, many consider this a stunt to deviate attention from the alarming reports about the harmful effects of social media on teenagers’ wellbeing.

All things aside, there are various metaverses. There are cryptocurrency projects that focus on it. These include SAND and Decentraland. Their purpose is to buy virtual land on their respective projects. For example, Paris Hilton and Deadmau5 performed virtual concerts on Decentraland, while Samsung opened a virtual store.

13) Keep up with the news and reports

Source: Pixabay

Even though crypto is still is in its infancy, the industry changes fast. Bitcoin caught the attention of nerds in its infancy to the worlds most prominent corporations in the financial sector in 2021. The latter went from shunning Bitcoin as a tool for criminals to acting as custodians for their clients.

My favourite news source includes specialized news portals CoinDesk, Bitcoin News, and general financial ones like Bloomberg and CNBC.

Government agencies, the financial sector and exchanges issue reports from time to time on the cryptocurrency industry. They are beneficial as they can give an insight on legislation (Government Agencies), past investments and insight reports (financial sector) and market performance (exchanges).

14) Legal problems

Source: Pixabay

The year 2021 was the year that crypto went mainstream. Big players in the financial markets sought how to adopt crypto. These included some of the largest banks, Tesla, Visa, PayPal, Sotheby’s, Expedia, etc.

These institutions accepted crypto because they were compliant.

Certain exchanges had to remove some cryptocurrencies from crypto exchanges. Three coins that come to mind are Zcash, Monero and XRP (Ripple). 

Zcash and Monero are privacy coins. Their purpose is to anonymize transactions. Law enforcement agencies put a lot of pressure on exchanges to delist them. Bitcoin was considered a privacy coin. Bitcoin isn’t anonymous – it’s pseudo-anonymous. Transactions on the Bitcoin blockchain can be traceable. Zcash and Monero offer complete anonymity. They’re two of the favourite cryptocurrencies on the darb web.

XRP is the cryptocurrency of Ripple Labs. XRP’s objective is to dethrone SWIFT, the international money transfer infrastructure between banks. A bank transfer that can take days and incur high fees can now take place in a few seconds and cost less than a cent. 

The Securities and Exchange Commission (SEC) accused Ripple that its XRP token is a security, and therefore it required its XRP token to be given the go-ahead before it could be listed. The SEC sued Ripple and caused major exchanges to halt their trading. The court case is still pending a decision from the court. 

I recommend staying away from coins that may run against any laws. 

Good luck!


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