How does the Buy and Hold strategy work in the cryptocurrency market
The Buy and Hold strategy came to the cryptocurrency market from the classical stock market and means “Buy and Hold”. This strategy is designed for long-term storage of any asset.
Buy and Hold is one of the most popular cryptocurrency market strategies. It was especially popular in 2017, when cryptocurrencies showed stable growth, which is not in any other areas.
Now cryptocurrencies are steadily falling. Therefore, the application of this strategy has faded into the background and many investors talk about the disadvantage of this strategy.
Indeed, compared to the peak of 2017, cryptocurrencies have now lost in price by 3 or even more times. Moreover, the more cryptocurrency grew in 2017, the more it lost in 2018. Therefore, those investors who bought cryptocurrency at the peak of its popularity in 2017 in 2018 lost money 3 or more times.
Buy and Hold is designed for long-term storage. In classic stock exchanges, Buy and Hold is used when storing assets for 10 – 20 or even more years. Therefore, the assets themselves for this strategy are used only by the most reliable, which will grow in value over time.
As for cryptocurrencies, the most reliable asset is Bitcoin. Due to the fact that this is the oldest cryptocurrency that appeared in 2009.
In September 2009, 5050 BTC were exchanged for 5.02 USD in PayPal. Now the rate of 1 BTC is $ 6500. Thus, the price of 5050 BTC for the period from 2009 increased from $ 5 to $ 32,825,000 in September 2018, i.e. for 9 years.
As you can see, long-term investments in Bitcoin are quite promising.
Stages of the Buy and Hold Strategy
The main stage of the Buy and Hold strategy is the selection of an asset.
An asset must meet the following requirements:
- Reliability. Buy and Hold strategy involves long-term investments, therefore reliability is the main requirement for an asset.
- Utility. An asset must have useful functions for societies. The more people need a cryptocurrency or token, the more often it is used, the higher its price.
- The uniqueness of the idea. Experience shows that cryptocurrencies that copy more successful ones rarely succeed. Cryptocurrency technology must bring something new.
- Availability of infrastructure. For people to use cryptocurrency or a token, it must be convenient to use. There should be exchanges, wallets, exchangers working with this cryptocurrency. It should be accepted by stores. You need to monitor how quickly the coin infrastructure is developing and expanding compared to others.
Thus, reliable and time-tested assets are most suitable for the Buy and Hold strategy. These assets need to be purchased during the decline in their prices. The cheaper you buy the asset, the better.
The Buy and Hold strategy does not involve the sale of an asset, but is designed for its long-term storage. Therefore, investors need to have strong nerves in order not to sell the asset during the next recession.
As for Bitcoin and many other cryptocurrencies, it should be remembered that the release of Bitcoin is limited. In total, 21 million Bitcoins will be issued. After that, the release of Bitcoin will cease. Already, much less Bitcoin is produced than was mined in 2009. So in 2009, the miner received 50 BTC for processing the block, now he receives 12.5 BTC. The cost of mining Bitcoin is growing, and therefore the price of Bitcoin will also increase.
More manners are joining Bitcoin mining, and hence the complexity of Bitcoin hashing is constantly increasing. It is getting harder and harder to mine.
Bitcoin infrastructure is expanding. New wallets appear that support Bitcoin. More and more stores began to accept Bitcoin. Bitcoin began to use classic exchanges and financial institutions. That is, the need for this cryptocurrency is growing.
And this means that it is in the long run that investing in Bitcoin is profitable.
By the same principle, it is necessary to analyze other cryptocurrencies before deciding on the long-term contribution and use of the Buy and Hold strategy.
Advantages and disadvantages of the cryptocurrency buy and hold strategy
- The novelty of the market. Blockchain technology presents many opportunities. Constantly there are new areas and areas of application of the blockchain.
- Fast development. Compared to the traditional market, cryptocurrencies are developing extremely fast. This provides an opportunity for faster and higher earnings.
- Perspective. There are many new interesting projects. You can enter at the start of the project with a new and interesting idea. There is even a special direction for this: Investing in ICO. Although with new ideas you need to be extremely careful and be able to distinguish between a really promising idea, which in the future will bring significant profit, with advertising promises.
- High volatility. The price of cryptocurrency is constantly fluctuating. According to statistics, Bitcoin is developing in waves. After the rise, there is a long and long decline, so that then a new wave appears, even more powerful. The last decline of Bitcoin lasted 3 years from December 2013 to December 2016. Throughout 2017, Bitcoin has been growing. In 2018, another recession ensued. It is very difficult to hold back and not sell an asset in a recession. In addition, as Bitcoin statistics show, a recession can last several years. Other cryptocurrencies do not have such a long history as Bitcoin.
- A lot of fraud. The popularity of cryptocurrencies attracts a large number of scammers. Money must be able to save. Cryptocurrency wallets are being hacked, exchanges are also hacking. There are no reliable ways to store cryptocurrencies. Money on wallets can be stolen by scammers.
- A large number of fraudulent ICOs. It is very difficult to choose the right asset for investing. As you know, investors earn the biggest money when they invest in an idea at the start. But it’s very difficult to distinguish a really useful idea from advertising promises. Many ICOs were empty promises. Therefore, it is better to invest in time-tested and reliable assets, but often their price is already overestimated, and even if it continues to grow in the future, it is not as significant as with a new asset.
Applying a Buy and Hold Strategy
The application of the Buy and Hold strategy consists of several stages:
- Asset selection. New assets bring greater profit, they are more promising. But without experience, you can believe the advertising promises of the creators, who in reality will remain advertising promises. Therefore, it is safer to invest in time-tested assets.
- Choosing a secure wallet for storage. For the Buy and Hold strategy, it is important not only to choose an asset, but to save it. To do this, there must be a reliable and time-tested wallet. It is better to choose cold wallets without access to the Internet. But reliable wallets do not support new and little-known assets. This is another reason why for Buy and Hold tactics it is better to use reliable, time-tested assets with developed infrastructure and a large selection of wallets for storage.
- Monitor the fluctuation of the asset rate and buy cryptocurrency during the next recession. If you choose the Buy and Hold strategy, then you need to buy an asset during a recession, that is, when most traders sell the asset. After all, your goal is not a quick profit, but a long-term investment.