Long-Term Investment Done Right: Invest with Less Stress
As the crypto market euphoria of 2021 subsides, we look at why long-term investing could be the best strategy.
The past two years have been tumultuous and this has been reflected in the financial markets. As the fierce momentum in the cryptocurrency market is beginning to tail off, many investors are unsure of how best to weather the storm of price volatility and swings in sentiment.
We explain how adopting a long-term investment approach can help you to manage market uncertainty and stay stress-free while investing in crypto.
Why is the crypto market down in 2022?
What changed between the heady highs of 2021 and the crypto bear market of 2022? Let’s take a quick look:
Changes in economic policy
The current state of the crypto market is widely seen as being largely a result of economic changes in the United States. In order to manage the economic effects of the coronavirus outbreak, the Federal Reserve in the United States injected capital into the market to keep it afloat in never-before-seen amounts. This pushed retail and institutional investors towards crypto, as a hedge against inflation and, in turn, caused its price to rise far faster than expected.
However, now that the storm of the pandemic is beginning to clear, the Federal Reserve is leaning towards implementing economic policies to increase interest rates and abate quantitative easing. As a result, the price of bitcoin and similar risk assets is falling as investors expect lower inflation growth in the coming year and are looking to accumulate more traditional value investments.
This is most apparent when looking at the Fear & Greed Index, which is typically used as a gauge for attitudes towards bitcoin and other large cryptocurrencies. As of July 2022, the overall market sentiment is extreme fear, which has historically been a great time to buy crypto!
The Fear & Greed Index is used to measure market sentiment for the biggest cryptocurrencies at a given point in time (Source: Alternative.me).
Changes in political policy
At the same time, in 2022, the United States is not the only country that’s concerned with crypto. The growing prevalence of crypto has had significant geopolitical implications, and governments across the world have taken wildly different stances on digital assets. This caused the crypto market to crash.
In 2021, after several years of threats China made all digital currency transactions illegal. Elsewhere in the world, in the same year, El Salvador made bitcoin legal tender – solidifying its support for the asset by building bitcoin ATMs and planning to create a ‘bitcoin city’ – and the state of Arizona in the United States proposed a bill to do the same.
It’s clear that both price and sentiment swing massively and are extremely uncertain, not just depending on the economic state of the world but also on where you live, down to the state and city you’re in. For most people, it can be difficult to keep up with current developments around crypto and even more difficult to make sound investment decisions. This is why taking a long-term investment approach can be beneficial.
Long-term investment: Why do it?
Investing in crypto over the long-term allows you to do two things: spend less time focusing on short-term crypto news and current events, and dollar-cost averaging, reducing your exposure to the impact of short-term price fluctuations.
Long-term vs short-term investing
As we’ve discussed, economic and geopolitical events can easily turn the tide on financial assets. Making investments or exiting the market based on every news article, announcement, or report can lead you to make investment decisions purely on emotion. However, as a long-term investor, you can instead focus your time on analyzing long-term trends and making more informed decisions about how you want to allocate your money.
It’s worth noting here that assets such as bitcoin go through market cycles. There will be bullish periods and periods where the bear market prevails. Taking a long-term view allows you to concentrate on building up your investments over time, rather than focusing on short-term gains or losses, and more easily manage the extreme highs and lows of the market.
Dollar-cost averaging
Dollar-cost averaging is a popular investment strategy that can help you smooth the highs and lows of the market. It involves purchasing the asset of your choice at intervals, and in relatively equal amounts, rather than investing a lump sum at a singular point in time. When using this strategy, you’re not concerned with knowing whether you’re buying at the height of a market or the bottom. But by consistently accumulating, you get an average price of the asset over a long period of time.
This approach can easily reduce the stress of investing. Instead of needing to constantly keep an eye on the news to try and buy the bottom of every dip, you can simply focus on consistent accumulation.
Ultimately, there’s no right or wrong approach, but becoming a long-term investor is one strategy that can reduce the stress of crypto investing.
Remember, this article is not financial advice. Always ensure that you’re investing based on your own personal risk tolerance and financial goals.
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