Is Cryptocurrency a Good Long-Term Investment?

Investing in cryptocurrency can be risky but it can be a good investment if done correctly and as part of a diversified portfolio. Learn more about how to make long-term benefits from investing in cryptocurrency.

Is Cryptocurrency a Good Long-Term Investment?

Investing in cryptocurrency can be a good option if done correctly and as part of a diversified portfolio. It is a way to gain direct exposure to the demand for digital currency, but investors must consider the numerous risks associated with it. The value of the most popular cryptocurrencies has been volatile, the market is not very transparent, transactions are irreversible, consumer protections are minimal or non-existent, and regulators have not yet clarified their approach to regulating them. We suggest that investors who want to invest in cryptocurrencies treat them as a speculative asset using funds outside a traditional long-term portfolio.

With more than 21,000 different cryptocurrency coins and tokens in the market, investor interest is growing rapidly. However, choosing the right combination to maximize your long-term returns can be difficult under the best of circumstances. Trying to do so in a cryptocurrency bear market, also known as a “crypto winter”, can be overwhelming. For example, some analysts doubted that The Merge would have an upward effect on ETH and, in fact, ETH fell in the days following the improvement.

Excessive exuberance probably contributed to that increase and made the correction inevitable. In the 24 hours following Cardano's recent “hard fork” or protocol change, more than 100 smart contracts were implemented on the network, according to CoinMarketCap, and since then it has experienced exponential growth. If you are years away from your retirement date and you decide that you should allocate at least 20% of your investment portfolio to aggressive investments, cryptocurrency in the long term could be a way to get high returns. Throughout Bitcoin's existence, we've seen it grow exponentially and if history repeats itself, as we have seen several times before, Bitcoin tends to reach new all-time highs every 3-4 years.

You might see this as trivial, but you can't just go to a bank or other financial institution and buy cryptocurrency. Among the various altcoins available for purchase, stablecoins offer the versatility of a cryptocurrency with the stability of a fiat currency. There are many more people investing large amounts in the world's first cryptocurrency than in alternative currencies such as Litecoin and XRP. Grayscale Investments, one of the world's leading institutional investors in the field of blockchain, has a portfolio containing many cryptocurrencies, including Bitcoin, Ethereum, Litecoin, Stellar and XRP, among others.

While a few others have followed, all are limited to Bitcoin and Ethereum since those are the only two cryptocurrencies for which an active futures market has currently been established. Cryptocurrency regulation may be a hot topic but many experts say it's actually a good thing for investors and the industry. Do your own research before dedicating any part of your portfolio to cryptocurrencies and stay away from anything that even remotely looks like a multi-level marketing scheme. Bitcoin and other cryptocurrencies continue to grow in popularity but if you're thinking about investing in them there are a few key things you should know first.

Once you've decided to invest in cryptocurrency and identified which coins and tokens are worth your cryptocurrency investment it's time to create your portfolio. In May 2020 cryptocurrency markets fell into free fall leading the stable currencies TerraUSD (UST) to distance themselves from the dollar which in turn caused their linked cryptocurrency Luna to also plummet. Tax experts believe that since the IRS currently considers cryptocurrencies to be properties and not securities losses are treated differently from those of stocks and mutual funds so fraudulent selling rules generally do not apply. The most sensible approach to making long-term benefits for most people may be to build up a diversified cryptocurrency portfolio and rebalance the portfolio periodically.

So you need to understand what you're investing your hard-earned money in before venturing into the cryptocurrency space.

Marci Gauer
Marci Gauer

Award-winning zombie guru. Certified bacon nerd. Infuriatingly humble social media enthusiast. Incurable internet expert. Certified coffee maven.

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