All about the “Buy and Hold” strategy in the cryptocurrency market

In our review we will touch on the general features of this type of investment. We will advise you on how to choose the right amount of investment and when you can expect to make a profit

The Buy and Hold strategy has long been used in the stock market for long-term investing in shares of promising international corporations. 

The strategy gained popularity in the cryptocurrency market when traders saw a trend in constant demand for cryptocurrency, and as a result, a constant increase in the rate. If previously you could order two pizzas for ten thousand bitcoins, today’s exchange rate allows you to pick up a nice house with a yacht and a car for their price.

This trend towards an increase in the value of cryptocurrency has attracted a large number of adherents of the “Buy and Hold” strategy to the crypto market. But despite its obvious advantages, it also has disadvantages. 

Let's take a closer look at this strategy.

Its meaning is to choose an asset that, with a reasonable degree of probability, in the future will have a value many times higher than the current one. Purchase this asset, and despite short-term price fluctuations, hold the asset for a predetermined period of time. 

As a result, if the calculation turns out to be correct, then you can get the planned profit, otherwise the investment may completely lose its value. 

Conventionally, the “Buy and Hold” strategy can be divided into three stages:

- The first stage includes the collection and analysis of information.

- The second stage is the purchase of the selected asset and storage.

- The third stage is periodic monitoring and obtaining results.

The first stage is the most complex and most responsible. Here you need to decide on the choice of the asset, investments in which will bring benefits in the future. It is necessary to correctly calculate the investment period.

Calculation of the investment period.

On the stock exchange, long-term investments usually have terms of 10 to 15 years. In the rapidly developing crypto market, long-term investment periods are in the range of 2 to 3 years. It is possible that during a period of market stagnation, this period may increase to five years. In many ways, the choice of deadline will depend on the specifics of the tasks that the project for which the cryptoasset was chosen is designed to solve. 

Selecting an asset for investment.

The next step of the analysis is a detailed study of the investment object.. Here attention is drawn to the goals of the project. It is necessary to answer the following questions:

- will the project be useful in the future;

- how relevant is the solution to the tasks set now and will be in the future;

- has success been achieved in solving similar problems before.

Using fundamental analysis, a decision is made on the suitability of the project for investment. Fundamental analysis is the process of predicting the future value of an asset based on financial, economic and news information. 

Fundamental analysis is based on the following principles:

- price movement in the market occurs under the influence of certain factors;

- a set of factors compensate or enhance the total impact on the price;

- taking into account the influence of all factors and correct analysis can, with sufficient probability, give a forecast of price movement.

In the Forex market, fundamental events affecting the exchange rate of fiat currencies are the publication of indicators of the economic development of the state, speeches heads of government and national banks with reports on further monetary policy. 

With cryptocurrencies, everything is much more complicated: on the one hand, cryptocurrencies are decentralized and do not depend on the economies of states. On the other hand, government regulators are trying to take control of activities related to the circulation of cryptocurrency, and this fact significantly affects its value. 

Secondly, analysis of startups often does not allow us to say unambiguously whether the team will be able to implement its project and achieve success. Over a long period of time, it is very difficult to take into account all the factors that will influence the crypto asset. 

However, there is good news. It is not necessary to take into account all factors, since some of them will affect the price only in the short term and will be gradually compensated by the influence of other factors. In the long term, it is important to take into account only the key factors (idea of ​​creation, development team, degree of investor confidence), on which the achievement of the set goal of the entire project will depend.

After the analysis, we need to make our choice on a promising crypto-asset with an investment period acceptable to us and move on to the next stage..

The second stage is the purchase of the selected asset and retention. At this stage, it is necessary to correctly calculate the amount of investment. It shouldn't be very small. Нижняя граница выбирается такой, чтобы предполагаемая прибыль в будущем была ощутимой. Можно вложить 100 долларов США и стать миллионером, но это событие менее вероятно, чем вложив 500 долларов - получить 10 000.00 USD.

Верхний уровень инвестиций должен ограничиваться размером тех средств, который не критичен для вашего бюджета, если в результате неблагоприятных факторов, они будут полностью утрачены.

Третий этап - это периодический контроль своих средств. В процессе проверки нужно смотреть как идёт реализация проекта, на каком этапе развития он находится. What is the general price dynamics, what is the trend in the market.   

It is enough to carry out control twice a month. Можно контролировать и чаще, но при этом чётко придерживаться выбранной стратегии.

В ходе очередного анализа может возникнуть необходимость принять решение о дальнейшей целесообразности удержания данного актива. Такое решение можно принять при прекращении поддержки сети или распаде команды, которая работает над проектом.

Итоговым событием третьего этапа является анализ результата в конце срока инвестиции. If the expected profit is received, then it can be withdrawn. Но если желаемый результат не достигнут, а положительная динамика только началась и предположительно будет продолжаться в дальнейшем, то возможно срок инвестиций был выбран неправильно. В этом случае стоит позволить расти прибыли и пролонгировать срок инвестиций с учетом повторного проведенного анализа.

На криптовалютном рынке достаточно проектов, в которых применение стратегии «Buy and Hold» позволяет добиться успеха и получить существенную прибыль. Преимуществом данной стратегии является относительная простота реализации и отсутствие постоянных затрат на сопровождение.

К недостаткам можно отнести сложность проведения анализа на первом этапе инвестиции и выбор криптоактива.

Если самому провести тщательный анализ проблематично, то можно довериться мнению авторитетного эксперта. Тогда ещё одним недостатком этого метода можно назвать риск полного обесценивания капиталовложений..

As an alternative to the described “Buy and Hold” strategy, there is a “Portfolio Investment” strategy. The main feature of “Portfolio Investments” is the ability to select several goals for investing funds. This can be either capitalization of profits or preservation of assets from depreciation or hedging investment risks.