With the rise of cryptocurrencies like Bitcoin and Ethereum, many investors are wondering if they should hold crypto long term as part of their investment portfolio. There are arguments on both sides of this issue, so let’s take a balanced look at the pros and cons.
The case for holding crypto long term
There are several reasons why holding cryptocurrency for the long term may be a good idea:
- Cryptocurrencies have potential for high returns. Bitcoin, for example, has had several bull runs where it increased dramatically in value over a short period. Though past performance doesn’t guarantee future results, some experts think cryptos could continue to experience more bull runs as adoption increases.
- Long term holding means you don’t pay capital gains taxes on crypto sales. If you hold for over a year before selling, you pay the lower long term capital gains rate instead of the higher short term rate.
- The crypto market is still relatively new and expected to grow. Major companies like Tesla, Square, and PayPal now accept cryptocurrencies. Increased adoption could drive prices higher in the long run.
- You have time to ride out volatility. Cryptocurrencies are known for wild price swings. But long term holders can ignore daily fluctuations and focus on the bigger picture.
- Demand may increase in the future as supply gets capped. There is a limited supply of coins like Bitcoin. Over time as they become scarcer, demand could push prices up.
Essentially, the bull case for holding crypto long term rests on the thesis that cryptocurrencies are still just getting started, and their value will continue appreciating over the coming years and decades.
The case against holding crypto long term
However, there are also several reasons why holding cryptocurrency long term may be risky:
- Crypto is historically very volatile. Prices can crash just as quickly as they surge, leaving long term holders deep in the red.
- Governments could crack down with harsh regulations. If cryptocurrencies face a hostile regulatory environment, prices could plummet.
- Crypto doesn’t generate passive income like stocks. You’re relying entirely on price appreciation, not dividends or bond coupon payments.
- We may be in a crypto bubble that could eventually burst. Speculative assets don’t always go up forever.
- Newer cryptocurrencies could displace established ones like Bitcoin. The first mover advantage may fade over decades.
- Long term holders have to securely store crypto assets. Lost private keys could wipe out your holdings.
In essence, the bear case revolves around the fact that cryptocurrencies have no intrinsic value. They are purely speculative assets, and making long term bets on them carries significant risk that must be carefully weighed.
Factors to consider
If you’re deciding whether to hold cryptocurrency long term, here are some key factors to think about:
- Your risk tolerance – Cryptos tend to be riskier than stocks and bonds. Are you comfortable enduring volatility in pursuit of potential higher returns? Can you afford to lose most or all of your investment?
- Your time horizon – How soon will you need the money you invest in crypto? Long term holding only works if you don’t need to cash out for 5-10+ years.
- Your goals – Are you hoping to get rich quick from a speculative moonshot? Or are you looking for a diversifier to balance a stock and bond portfolio?
- Your total assets – Cryptocurrency should make up a small portion of your total net worth. Exact percentages vary by risk appetite.
- The crypto’s fundamentals – Research factors like the utility of the blockchain platform, development team, governance policies, adoption rates.
- Market conditions – Consider whether the crypto market is overheated when deciding on entry and exit points.
You need to assess all these factors holistically to decide if long term crypto holding aligns with your financial situation and sensibilities.
How much crypto should you hold long term?
Opinions vary on how much cryptocurrency investors should hold long term:
- 1-5% of your portfolio – Conservative take. Limits downside risk but offers less upside potential.
- 5-15% – Moderate take. Balances risk versus reward for most investors.
- 15-50% – Aggressive take. Increases risk substantially for chance of higher returns.
- Over 50% – Ultra high risk cryptocurrency focused portfolio.
As a benchmark, a Vanguard survey found 55% of cryptocurrency investors keep 5% or less of their portfolio in crypto. But asset allocation ultimately depends on your personal finances and risk appetite.
When allocating to specific cryptocurrencies, many advise holding at least 50% in “blue chip” coins like Bitcoin and Ethereum. The rest can go to smaller altcoins with higher risk and reward potential.
Tips for long term crypto holding
If you do decide to hold cryptocurrency long term, here are some tips to maximize your chances of success:
- Use a hardware wallet and safe storage practices to secure your private keys. Don’t lose your crypto!
- Dollar cost average rather than investing a lump sum all at once. This smooths out volatility.
- Rebalance your crypto allocation every so often to keep it aligned with target percentages based on your risk profile.
- Stay disciplined through market swings and don’t panic sell at the wrong times. Have a long term outlook.
- Keep most holdings in proven top cryptos, and use a small portion to invest in higher risk/reward altcoins.
- Keep an emergency cash reserve for living expenses so you don’t have to liquidate holdings during crypto downturns.
- Stay up to date on crypto news and regulations to understand the market landscape and outlook.
Implementing savvy long term cryptocurrency holding takes research, discipline, secure storage solutions, rebalancing, and keeping emotions in check. Do this the right way and you could see significant gains over 5-10 year timeframes.
Common concerns about long term crypto holding
Some common concerns that give investors pause about holding crypto long term include:
- Volatility – Cryptocurrency prices can drop precipitously at times, testing your nerves and conviction.
- Unknown future regulations – Governments could ban cryptocurrencies or cripple them with unfavorable policies.
- Cybersecurity risks – Hackers or lost private keys could steal your crypto, a constant worry.
- Tax complications – You may owe capital gains taxes whenever selling, making profit taking difficult.
- Scams – The crypto space is rife with scams and frauds to avoid.
- Storage challenges – Responsibly storing crypto is hard, especially for less tech savvy users.
While the upside potential excites many, responsible investors must carefully weigh these risks and determine if long term crypto ownership suits their risk tolerance and financial situation.
Historical crypto bull and bear markets
Looking at historical crypto bull runs and bear markets may provide perspective on possible long term trajectories:
| Bull/Bear Cycle | Duration | Bitcoin Price Change |
|---|---|---|
| Early bull run | July 2010 – June 2011 | ~$0.008 to $31.00 (+387,500%) |
| Bear market | June 2011 – November 2012 | $31.00 to $2.01 (-93%) |
| 2013-2017 bull run | November 2012 – December 2017 | $2.01 to $19,783.06 (+984,599%) |
| 2018-2020 bear market | December 2017 – March 2020 | $19,783.06 to $3,867.81 (-80%) |
| Current bull run | March 2020 – Present | $3,867.81 to ~$20,000+ (-400%) |
These historical cycles show cryptocurrency tends to experience prolonged bull runs of explosive growth, followed by bear markets where most gains get wiped out. This is the pattern long term holders hope will continue over the next 5-10 years. But there are no guarantees the cycles will repeat or gains will reach prior highs.
Projecting the crypto market size in 5-10 years
To gauge where crypto prices could go long term, it helps to make estimates about how much the overall market may grow. Here are some predictions on the potential crypto market size over the next decade:
- Pantera Capital: $35 trillion by 2025
- ARK Invest: $5 trillion by 2025
- Crypto.com: $5 billion users, $10 trillion market cap by 2025
- Bloomberg: $5 trillion by 2030
- Winklevoss Twins: $5 trillion to $8 trillion by 2027
For perspective, the crypto market cap as of November 2023 is around $1 trillion. If it grows to the $5 trillion to $10 trillion range, that’s a 5x to 10x increase which could plausibly drive major crypto prices much higher.
However, some view these projections as overly bullish. Critics point to the internet stock bubble in claiming crypto is overhyped. They think the market could stay closer to its current size if speculative mania fizzles out.
Scenarios for Bitcoin and Ethereum prices in 5-10 years
Given the uncertainty, instead of specific predictions it’s helpful to consider possible price scenarios for major cryptocurrencies in 5-10 years:
Bitcoin
- Bear case: $5,000
- Base case: $75,000
- Bull case: $500,000
Ethereum
- Bear case: $500
- Base case: $20,000
- Bull case: $100,000
Under the base case, Bitcoin and Ethereum would see annualized returns around 10-15% from their current prices at the time of writing. The bear case represents a permanent crypto winter, while the bull case requires everything to go right and the markets to hit the higher end of expected growth.
Predicting prices far into the future is speculation of course. But these scenarios help frame potential outcomes based on different trajectories the industry could follow.
Conclusion
Should you hold crypto long term boils down to your personal risk tolerance, time horizon, portfolio construction, and faith in the long-term crypto value proposition. There are credible arguments on both sides. Crypto could revolutionize finance and turn early adopters into the asset millionaires of the 21st century. Or it could be a faddish bubble bound to burst and trap naive investors.
For believers who can stomach the volatility, a modest long term crypto allocation of 5-15% can pay off handsomely if adoption keeps growing. But it comes with the risk of loss if cryptocurrencies fail to deliver on their promise. Evaluate your own financial situation carefully before choosing whether to HODL crypto for the long haul.
