The final quarter of 2017 was marked by huge increases in value for Bitcoin and several different alt-coins, bringing cryptocurrency to the fore of investment discussions. Some have seized the opportunity to preach the crypto evangel, while others have taken a cynical approach and declared the crypto markets an inevitable bubble destined to burst. It’s been a wild ride as Bitcoin has hit several bottoms while breaking through several all-time highs. What’s next, and how can you protect yourself?
While hype and speculation are certainly a component of the meteoric rise of Bitcoin and others, they certainly don’t account for the full value of cryptocurrency. After long periods of increases, nearly reaching $20,000 per coin, Bitcoin first experienced a significant downswing in mid-December, and the naysayers jumped on it as proof that the bubble had burst. But then, come early January, Bitcoin rebounded, only to decline again through the second week of the new year.
This up and down movement is not the result of some speculative bubble bursting, but rather a normal progression that will result in Bitcoin and other alt-coins finding their true value and, ultimately, stabilizing. While that might not be for some time, it is an inevitability. The coins with true use value will persevere and their prices will level off, while the ones that are backed by nothing more than speculation and marketing bravado will fall off and dissipate.
Long-term investment strategy is about determining which assets hold that real value, and which are just the paper tigers destined to implode. This is not always black and white, and it requires a great deal of research; however, the good news is that the crypto markets are not some otherworldly realm not subject to the laws of basic economics. On the contrary, the basics of investing and trading apply to cryptocurrency as well. In this article, we will illuminate the current landscape and explain why values are fluctuating as they are, as well as explain how you can make wise moves based on an educated, long-term investment strategy that gives you the best chance of growth in perpetuity. Do keep in mind that this is not investment advice, only our opinion. We encourage you to speak with a financial advisor if you are making large capital investments.
The Current Cryptocurrency Landscape
The past month has been a bit of a roller coaster for Bitcoin, which peaked around $20,000 on December 17 and then proceeded to decline dramatically through December 22, bottoming out around $12,000 per coin. It then immediately rebounded to roughly $16,000 per coin, and began a down-again, up-again volley through the new year, when it began to climb again through the first week of January, topping out at just over $17,000 per coin. Then, in the past day, it dropped back to $12,000, sending alt-coins on a panic-drop off a cliff as well, only to begin the recovery process shortly thereafter.
The periodic declines in value for Bitcoin and various alt-coins may be explained by exchange networks locking out new users or freezing trading in order to work on their infrastructure. When this happens, the overall market cap temporarily plummets because trading slows to a halt or new users cannot begin trading. This work is necessary to handle the ever-increasing volume the cryptocurrency market is experiencing, but it has the effect of crashing the values of almost every major coin. In the end, they’ve always bounced back; these steep declines due to infrastructure repair represent immense buying opportunities, but they do not represent the true value of the coins in question.
And then of course, there is FUD (Fear, Uncertainty and Doubt). Fear of the fake news about South Korea banning cryptocurrencies is one possibility. Fear of China doing the same is another. Fear that the United States and other countries may follow suit is the panicked conclusion that people make, and the result is that the fearful take losses, while those who HODL see nice short-term returns by buying the dip.
All of this movement, in either direction, is not indicative of the true value of the coins. It’s important to remember that as these markets evolve, the true winners and losers will be identified by which coins are useful to people and, therefore, are used most often. Consider this pioneering moment a time when the coins are finding their true value; there will be many that disappear, and some that rise to the top and remain for the long term. Which coins will be the “winners” remains to be seen, and in fact we might not even be aware of the coins that will be the household names of tomorrow. But as speculation wanes and potential use cases become clear, we can expect the volatility to stabilize and the values of some coins to level off.
What does this mean for the future? Bitcoin is king now, because it acts as the digital reserve currency against which most other currencies are traded. However, people are also trading against currencies like Litecoin and Ethereum, meaning Bitcoin might not reign supreme forever. And, from a utility perspective, Ethereum ERC-20 technology serves as the foundation for most ICO tokens. In fact, Bitcoin could eventually be overtaken by an unknown or little known coin that is on the radar of few people today. What that means is any long-term investment strategy should be focused on finding the true value in all prospects, not just the ones that appear to be surging today.
While the Cash Tech News team are not financial advisors, we have put together some tips for tweaking a sound investment strategy and understanding which assets have long-term growth potential. Want to know what the professional are doing? Keep reading.
Devising a Sound, Long-Term Investment Strategy
The real question in any investment is whether you can expect a return. But where do returns come from? When a company, or in this case cryptocurrency, continuously fulfills a need, it continuously grows in value. That is to say, if there are real, practical, useful and unique applications for the coin you’ve invested in, there’s a good chance it will be here for the long haul, despite any fluctuations that might be caused by the current market conditions.
So, how do you identify true value at the early stages to maximize growth potential? Cryptocurrency is a new phenomenon, but it is not immune to the same old rules investors have been following all along. Establishing a strong understanding of the basics of trading will serve you will in any market, cryptocurrencies included.
Diversify Your Portfolio
Never put all your eggs in one basket, even if you think it’s the best basket out there. Investing in several foundational assets that you know provide real value and represent solid, long-term growth potential will give you a bedrock of certainty from which to make additional investment decisions. Taking big risks on flavor-of-the-day assets without a cushion is a recipe for disaster, but spreading your investments across several healthy assets with strong use propositions gives you the strong footing needed to then make bolder moves with confidence down the line. Diversification also hedges your bets in case that really good basket turns out to run into catastrophe and fail to live up to its potential.
Understand the True Value of Your Assets
At the very core of any investment is the necessity of truly understanding your asset inside and out. That means it’s wise to start out with what you already know. Whether you’ve studied a specific coin or observed an encouraging pattern in another, investing in assets you’ve researched and understood is always the wisest move. It’s important to avoid hype and impulsive decisions based on the news cycle or hearsay, especially if you don’t really understand the foundation of the asset.
There are a few major things to avoid when selecting an asset to invest in:
- Don’t buy on price alone. Understand why a cheap coin is going to rebound, or why a pricey one is going to continue growing. Movement is inevitable, and the name of the game is sustained growth.
- Don’t overly rely on analysts. Experts sometimes give you great insights, but they’re not always right. Moreover, they might have unidentified biases that lead to certain recommendations.
- Volatility is to be expected. This is true for any market, but cryptocurrency is an especially new market that is subject to quick ups and downs. If you’re confident in your strategy and you know your assets, you should be able to weather any storms that might come your way.
- Know when to sell. Yes, this is a long-term strategy, but that doesn’t mean you should pass up good opportunities to take profits, or stop your losses when the trends are clear.
Learn the Basics of Technical Analysis
Even when you understand the value proposition behind an asset, however, it can be difficult to identify when to buy and when to sell. Even in a long-term investment strategy, it’s important to make calculated moves and reshuffle your portfolio when the time is right. Once you’re accustomed to watching the ebb and flow of the markets, it’s time to get into technical trading. A good starting point is to recognize In addition, learn about the most common indicators, such as RSA and Moving Averages. Don’t try to use every indicator available as that will only result in analysis paralysis. Instead, chose a few that work best with your overall trading strategy. Here’s a great place to start:
Scrutinize Your Crypto Assets
If understanding the assets you’re investing is key, what are the right questions to ask about cryptocurrency you are considering purchasing as a long-term investment strategy? In all things, it’s wise to being with the question, “what is the true use value of this asset?” For coins, that could mean the ease with which it is exchanged for commercial transactions, or the level of privacy and anonymity it grants users. If there is a real need that the coin fulfills, that is a good signal it will be here for the long haul. Conversely, if a surging coin offers no real usefulness, it is likely a flash in the pan riding to coattails of the cryptocurrency movement; these assets are likely not wise long-term investments even if their current growth appears explosive.
Prolific Bitcoin investor and CEO of MemoryDealers.com Roger Ver recently stressed the importance of diversifying your coin holdings in an interview. In fact, he stated that the emerging winner of the cryptocurrency markets might be a coin that nobody has even heard of yet, so it makes sense to put your money wherever you think a true value proposition exists.
“At the end of the day it’s whatever cryptocurrency is most useful to people is the one they’re going to use,” Ver said. “It would be absolutely silly and stupid to put all your eggs in one basket … I hold a wide variety of coins and that’s the smart thing to do.”
Of course, understanding where true value propositions exist means doing your due diligence and conducting the research necessary to concern your suspicions. When it comes to cryptocurrency, investors have far greater latitude and transparency to understand what’s going on with a given coin. For example, by employing blockchain inspectors, transaction activity can be scrutinized to identify red flags, such as whether whale activity is having a profound impact on the value of the currency or if there are any signs of market manipulation, before investing.
Once you’ve completed the steps above, it’s time to maintain vigilance but also confidence in your strategy. If you know the value propositions of your coins and you understand ongoing developments and movements on the blockchain itself, you can rest easy knowing that your long-term investment is sound and informed. It is important to refrain from panicking at every movement of the market; if a coin takes an unexpected downturn, but you double-check your information and your prognosis remains positive, hang in there. Don’t sell off a potential long-term growth prospect because of a bad day or two. That said, remain attentive to any major changes in the market that might signal a shift in your original calculus; investing for the long-haul means constant reevaluation and confirmation of your suspicions.
Ultimately, investing in a coin with a long-term approach is a game of betting on staying power. When holding a coin for the long haul, you are essentially saying “I believe the value of this asset will only grow in time.” Rest assured that if you check the major boxes – it provides a real, needed value; the market is not subject to manipulation; you understand the major drivers of growth – your odds of success are good. Furthermore, diversifying your holdings means the occasional misjudgment will not be catastrophic to your overall portfolio. And while the basics of trading still apply, cryptocurrency is far more transparent and insulated from manipulation than traditional investments, granting investors a greater deal of scrutiny and influence when it comes to managing their holdings. For the long-term investor, the time is now to find the household names of tomorrow, and it all starts with use value.
Cash Tech News and its writers are not financial advisors and the reporting above is not intended to be taken as professional financial advice.
Dennis Consorte has an appetite for news and information about cryptocurrencies, blockchain, IoT, fintech, adtech, martech and other technologies. He also has over 20 years’ experience in digital marketing and content strategy.
The views and opinions expressed here are for informational purposes only, and should not be confused with professional financial advice. These opinions are solely those of the author and do not necessarily reflect the views of CashTechNews.com. Every investment and trade involves risk. You should conduct your own research, and contact your professional financial advisor before making any investment.
Corrections, feedback, and ideas should be submitted through the website contact form.