Trading Guide for Cryptocurrency: 4 Long-term Strategies

Cryptocurrency is changing how we think about money and investing. This blog, part of our investing and trading series, focuses on long-term crypto investing strategies. We’ll explain common long-term strategies, how to choose the right cryptocurrencies, and how to create a solid investment plan.

Key pointers

• Hodling has been the best strategy for the last 15 years, but also extremely risky.
• Even though the crypto market has unmanageable risks, fundamental analysis can reduce some of them.
• Dividend projects give both cash flow and potential growth but their realized return is still very volatile.
• Diversification helps reduce risks and also return. There are many different diversify methods, with different complexity, pros, and cons.

Crypto long-term investing strategies

Long-term strategies follow the saying, “Time in the market beats timing the market.” These strategies focus on slow, steady growth and avoid risky tokens or ultra-high-interest exchanges. Long-term investors buy and hold for a long time, reducing the trading fees that frequent traders face. Uniquely in crypto, you can also earn extra revenue by yield farming with the tokens you hold.

1. Hodling

The original strategy of crypto investing, and arguably the best, is simply Hodling. If you had held, for example, BTC, you would have seen better returns than any other asset for the last 15 years. However, this huge return comes with significant risk. What if extreme volatility wipes out your account and shakes confidence in the crypto market? What if new technology makes BTC obsolete? What if traditional finance adapts and makes cryptocurrencies unnecessary?

We recommend our customers invest responsibly, implement risk management strategies (more on that later), and secure their funds in cold wallets. It’s important to keep calm during the bear market, it may be the discount you were waiting for.

If you’re wondering how to find good tokens to hold, we have some information in the next section on our value-investing strategy.

2. Value-investing strategy

With the value-investment strategy, investors analyze the fundamentals of cryptocurrencies and buy those they believe to have strong growth potential or are undervalued.

Fundamental analysis is challenging, not only in the crypto space, but also in traditional financial markets, due to risks from rumors, uncertainty, or deliberate misinformation. In the crypto space, this is compounded by the lack of established research and legal protection. Having said that, if you filter out the noise, there are great reports, such as this report from our partners at Reflexivity Research which predicted the 2024 cryptocurrency price surge.

Nonetheless, we suggest thorough research on each coin before you invest, and we suggest looking at these main factors, which may help filter out bad projects, and find promising cryptocurrencies that might appreciate over time:

• Overall economic conditions
• The project’s whitepaper and roadmap
• Token adoption in mining and exchanges
• The project’s current and projected revenue and profit

3. Dividend-focus trading strategy

With a dividend-focused strategy, investors prioritize tokens that provide regular dividends rather than those with higher growth potential. This approach, popular in stock trading, offers both cash flow and long-term growth.

For this trading strategy, after finding cryptocurrencies with strong fundamentals that pay dividends, investors also need to understand the tokens’ reward-yielding mechanism and their sustainability.

It’s important to remember that even if a token consistently pays dividends, its market value can still fluctuate. These price changes can affect the overall profit. Therefore, while dividends can provide a steady income, investors should also be mindful of the token’s price volatility.

4. Diversification strategies

Diversification strategies follow the motto “Never put all your eggs in one basket”.

The key to diversification is investing in cryptocurrencies that have low correlations with each other. In general, coins with higher market capitalization fluctuate less but have less growth potential than coins with low market capitalization. Thus, to diversify effectively, we recommend spreading your investments across various segments of cryptocurrencies to help mitigate risks and maximize potential returns:

• Large Cap: Include well-established and high market cap cryptos like BTC and ETH
• Medium Cap: Add cryptos like UNI and ATOM
• Small Cap: Include lower market cap cryptos like CAKE and TKX

Managing a diverse crypto portfolio can be complex and time-consuming, especially when using multiple exchanges. However, the benefits often outweigh the cons. It would be best if you also considered using exchanges with great asset management features like Tokenize Xchange.

Different diversification strategies for cryptocurrency include:

1. Diversify equally

The simplest form of diversification, in which case your portfolio has an equal amount of each coin.

Example: your portfolio consists of $1000 each of BTC, ETH, UNI, ATOM, CAKE, and TKX.

2. Diversify by market capitalization

The most common form of diversification. In this case, the coin in your portfolio is proportional to the market cap of the cryptocurrencies. Market cap = Price x current supply.

How to diversify by market cap:

Crypto	Approx. Marketcap (USD)	Proportional Investment (USD)
BTC	1 500 000 000 000	1500
ETH	500 000 000 000	500
UNI	10 000 000 000	10
ATOM	5 000 000 000	5
TKX	1 000 000 000	1
CAKE	1 000 000 000	1

3. Crypto ETFs

Crypto ETFs are ideal for long-term investors who prefer passive approaches. They are traded on stock exchanges, making it convenient for new investors to enter the cryptocurrency market. Moreover, they adhere to strict regulatory standards, ensuring legal compliance, and providing investors with security. The best part of crypto ETFs is that the funds manage the vesting, trading, and diversifying of multiple tokens for you.

However, a limitation is that current crypto ETFs only invest in BTC and ETH, which may not provide as much diversification as some investors would prefer. Despite this, crypto ETFs offer a straightforward and cost-effective way to gain exposure to a variety of crypto assets, making them a smart choice for those seeking a simpler investment strategy.

4. Diversify in time

When you trade all at once, you risk buying at price peak or selling at price drop. Instead, you can execute smaller trades in many intervals, which means your trading price would be the average price of the period. This is also known as DCA trading (dollar cost average), which can be more complex than spot trading, but Tokenize Exchange’s DCA investing feature makes it simple.

5. Weighted diversification tactic

Weighted diversification tactics provide the best of both stability and personalized investment goals. Investors allocate 65% to 95% of their funds to diversified assets, ensuring stability across their portfolios. The remaining portion is directed towards individual objectives, such as investing in tokens they believe in, purchasing large-cap tokens for security, or betting on volatile alt-coins for potential higher returns. This approach allows investors to balance the reliability of diversified assets with opportunities aligned with their specific investment strategies and risk appetites.