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Should You Hold Cryptocurrency Long-Term?

Investing in cryptocurrency for the long term can yield significant returns for investors who exercise patience. As virtual currencies are still in their early stages, they have the potential for continued growth in the coming years. However, it is important to weigh the pros and cons of holding cryptocurrency for an extended period. These include advantages such as tax benefits, but also risks associated with investments. It is advisable to consult a financial adviser before making any investment decisions to determine if cryptocurrency aligns with your investment goals.

Day Trading Cryptocurrency Vs. Holding Cryptocurrency Long Term

When considering investment options in the cryptocurrency market, it is crucial to carefully analyze the distinctions between day trading and long-term holding. Day trading involves executing short-term trades within a single day, emphasizing swift buying and selling. For novice investors, day trading can pose substantial risks due to the inherent volatility of cryptocurrency prices and market trends. On the other hand, long-term holding is a strategy that involves retaining specific cryptocurrencies for extended periods, often spanning multiple years. Opting for long-term holding has the potential to mitigate risk by leveraging the benefits of sustained market growth.

Benefits of Holding Cryptocurrency Long-Term

While holding cryptocurrency for the short term offers enhanced liquidity, there are notable advantages to keeping crypto assets for the long term, including increased stability and valuable tax benefits. Determining whether cryptocurrency is a suitable long-term investment depends on your individual needs and objectives.

Less Volatility

Holding cryptocurrency for the long term provides investors with the advantage of increased stability. Long-term trading is characterized by lower volatility, as it prioritizes gradual growth instead of capitalizing on short-term price fluctuations. Generally, both stocks and cryptocurrencies exhibit reduced volatility over an extended period, making it an appealing prospect for individuals seeking to avoid trading based on momentary price swings.

Tax Advantages

As per the IRS guidelines, in order for a cryptocurrency sale to be classified as a long-term gain or loss, it must be held for a period exceeding one year. Conversely, if a cryptocurrency is sold within a year of its purchase, it is generally considered a short-term transaction. One significant distinction between long-term and short-term holding of cryptocurrency is the greater range of benefits associated with the former. Holding cryptocurrency for an extended period allows individuals the opportunity to be taxed at a lower rate and be subject to long-term capital taxes, providing advantageous tax considerations.

Less Stress

Maintaining cryptocurrency holdings over an extended period has the potential to alleviate stress. When engaging in long-term cryptocurrency holding, the need to monitor its daily performance diminishes, as it becomes less susceptible to short-term volatility.

Drawbacks of Holding Cryptocurrency Long Term

Before deciding to hold cryptocurrency for the long term, contemplate the likely drawbacks, such as decreased liquidity and investment risk against the potential benefits.

Less Liquidity

One crucial factor to consider when making investments is the impact on liquidity. Liquidity refers to the ease with which assets can be converted into cash. Opting for long-term investments reduces liquidity, making it more challenging to access cash on short notice. Before making any investment decisions, it is prudent to assess the adequacy of your emergency fund. An emergency fund should ideally cover three to six months’ worth of expenses, ensuring that unforeseen events can be managed without needing to tap into long-term investments.

Investment Risk

Cryptocurrency represents a relatively new investment opportunity compared to stocks, introducing investors to a heightened level of risk due to the presence of numerous unknown variables. As a whole, the future value of cryptocurrencies is yet to be determined.

Security

Over time, there is a possibility of forgetting crucial information such as account keys or passwords. To ensure uninterrupted access to your account, it is advisable to collaborate with an account holder that provides robust customer service. It is essential to seek out an account holder that offers exceptional security features to protect against hackers and potential theft.

How to Know Whether Holding Cryptocurrency Long Term is Right for You

Holding cryptocurrency for an extended period can be a strategic decision for individuals seeking long-term portfolio diversification or more daring investment avenues. With the rapid expansion of cryptocurrencies, long-term holding provides believers with the potential to capitalize on significant financial growth.

You’re Planning Your Retirement

Including a carefully calculated portion of cryptocurrency in a robust retirement account promotes asset diversification. Companies like Bitcoin IRA enable customers to hold cryptocurrency within a designated crypto individual retirement account (IRA). An IRA is a type of account that is commonly classified into two categories: Roth IRA and traditional IRA. A Roth IRA entails using after-tax dollars, whereas a traditional IRA involves utilizing before-tax dollars.

You Believe in Crypto’s Future

Cryptocurrency has grown exponentially over the years. Virtual currencies offer a new and exciting opportunity given the understanding that the market has yet to reach its full potential.

You’re Looking to Diversify

Investing in crypto can improve a portfolio’s diversification and reduce risk exposure. It’s often recommended to have less than 5% of a portfolio placed into crypto.

What Is the Best Cryptocurrency To Invest In Long Term?

Choosing the most suitable cryptocurrency for a long-term investment is contingent upon various factors, encompassing personal preference and risk tolerance. Prior to making any investment decisions, it is advisable to consult with a financial professional to gain a more comprehensive understanding of the available options. In general, Bitcoin, Ethereum, and Litecoin are recognized as three of the leading choices for long-term investing.

Bitcoin

Bitcoin (CRYPTO: BTC) is widely recognized as the pioneering decentralized virtual currency. It boasts one of the highest market capitalizations (market caps) among all cryptocurrencies. Market cap is determined by multiplying the current coin supply by its price. Bitcoin retains its popularity among both novice and seasoned cryptocurrency investors due to its consistent upward trajectory in terms of price and widespread recognition.

Ethereum

Ethereum (CRYPTO: ETH) was launched in 2015 and has emerged as one of the most valuable cryptocurrencies in the market. Ethereum’s native cryptocurrency is called Ether, and it operates on a blockchain platform, serving as a decentralized virtual currency. Ethereum exhibits significant potential for long-term price growth.

Litecoin

Litecoin (CRYPTO: LTC) was initiated slightly over a decade ago, positioning itself as one of the earliest open-source altcoins. An altcoin denotes a coin that is distinct from Bitcoin. The cryptocurrency was specifically engineered with a strong emphasis on achieving remarkable transaction speed.

Cryptocurrency Offers Long-Term Growth Opportunity

In general, retaining cryptocurrency offers daring investors the opportunity to pursue long-term growth. The act of holding virtual currencies over an extended duration presents enticing advantages, spanning from favorable tax benefits to reduced stress. Prioritize assessing your risk tolerance to ensure comfortable and appropriate investment decisions.

Frequently Asked Questions

Q: Should I hold my crypto long-term?

A: Holding for the long term can prove a profitable strategy for individuals focused on future growth.

Q: Can you put cryptocurrency in a Roth IRA?

A: Yes, it’s possible to place cryptocurrency into a specifically created crypto Roth IRA account. Cryptocurrencies are not commonly accepted in typical retirement accounts. Fortunately, companies such as Bitcoin IRA allow individuals to hold crypto in a designated crypto retirement account.

Q: When should I sell my crypto?

A: The decision about when it’s best to sell crypto remains a personal choice, but like most assets, it’s recommended to sell high and buy low.

Self Directed IRA is written on a clipboard

Self-Directed IRA vs. Regular IRA: Understanding Your Retirement Choices

When it comes to retirement savings, there’s no one-size-fits-all. Understanding the difference between a self-directed IRA vs. a regular IRA can help investors. Each type of IRA has unique benefits and limitations, and understanding these can lead to making informed decisions about your retirement strategy. In this article, we delve deeper into the differences, benefits, and considerations. 

What Is a Regular IRA? 

A regular traditional Individual Retirement Account (IRA) is a tax-advantaged account where individuals can invest pre-tax income, and the earnings grow tax-deferred until they’re withdrawn at retirement age. The primary benefits of a traditional regular IRA include: 

  1. Tax-deferred growth: You pay taxes only upon withdrawal. 
  1. Contributions may be deductible: Depending on your income and other factors, your contributions might be tax-deductible. 

Self-Directed IRA: Broadening Your Investment Horizons 

A self-directed Individual Retirement Account (SDIRA) gives you more control over your investment selection. Unlike regular IRAs, which typically limit you to stocks, bonds, and mutual funds, SDIRAs allow for a broader range of asset diversification, including real estate, precious metals, private equity, and cryptocurrencies. 

Self-Directed IRAs: Including Traditional and Roth IRAs 

It’s important to note that “self-directed” doesn’t pertain to the tax structure, but rather to the investment choices. Thus, a self-directed IRA can include: 

  1. Traditional IRAs: Pre-tax contributions, tax-deferred growth, and taxes paid upon withdrawal at retirement age. 
  1. Roth IRAs: Post-tax contributions, tax-free growth, and tax-free qualified withdrawals at retirement age. 

Both types offer substantial tax advantages that can amplify the growth of your savings. The key is to choose based on your current income bracket and projected income in retirement. 

Benefits of Diversifying with Bitcoin and Cryptocurrencies 

With the financial world rapidly evolving, cryptocurrencies are becoming a more sought-after investment. Trusted companies like BitcoinIRA allow clients to trade cryptocurrencies within a self-directed crypto IRA.  

Three benefits of diversifying with crypto IRAs include: 

  1. Potential for growth: Crypto IRAs present a groundbreaking way to diversify one’s portfolio, potentially tapping into the exponential growth cryptocurrencies have shown over the past years. 
  1. No capital gains tax: Unlike other types of crypto trading, IRAs are not subject to capital gains tax, which could be a huge savings for investors. 
  1. Inflation hedging: Because cryptocurrencies are not tied to fiat, investors may include crypto in their portfolios as a hedge against inflation. 

Self-Directed IRA vs. Regular IRA: Key Considerations 

  1. Investment control: A self-directed IRA offers greater control over investments, while a regular IRA restricts you to conventional assets. 
  1. Diversification: SDIRAs provide broader investment choices, enhancing diversification. 
  1. Responsibility: With greater freedom comes greater responsibility. SDIRA holders need to be aware of the rules and regulations that come with alternative investments. 

How to Open a Self-Directed IRA with BitcoinIRA 

Embarking on the cryptocurrency investment journey with BitcoinIRA is straightforward: 

  1. Apply for an account: Fill in an application to create your self-directed IRA account. 
  1. Roll-over funds: Transfer funds from an existing retirement account or make a contribution and start fresh. 
  1. Start trading: Once your account is set up and funded, you can start trading a variety of cryptocurrencies. 

By partnering with BitcoinIRA, you’re ensuring a seamless and secure trading experience, tailored to boost your retirement savings.