Why Invest in Crypto for the Long Run

Patience is a virtue: this seemingly old-fashioned saying is a perfect fit for the turbulent crypto market. While it can be tempting to make bets when prices are quickly rising (or abstain from entering the market completely when they seem to be dropping), savvy crypto investors actually understand crypto is a long-term investment. 

In this article, we’ll cover past market cycles for crypto to analyse volatility and discuss future evolutions. We’ll also see how crypto ETPs are a great option to invest in crypto for the long term - accessible to all thanks to the ETH ETP and BTC ETP available on Peaks. 

Crypto Moves in Hard to Predict Cycles… 

In financial markets, investors like to talk about “bull” or “bear” market phases. Just as a real-world bull springs forward, pushing everything in its wake, prices in a bull market are growing sharply. Conversely, prices in a bear market are dropping as the markets contract, apparently hibernating. 

Bull/bear phases can last from anywhere to a few weeks to several months. And crypto has obviously been through several cycles in the last few years. 

Looking at, for example, bitcoin’s price history, we can clearly see several market phases:

• Mid to end of 2020: Consolidation -  BTC experiences relatively low volatility, its price mostly fluctuating between USD 9,000 and USD 12,000.
• End of 2020 - April 2021: Bull period - prices jump to USD 60,000 with strong volatility
• April 2021 - November 2022: Correction and new bull period, as prices drop by 50% before reaching a new all-time high (over USD 68,000).
• November 2021 - November 2022: Bear period -  prices fall under the USD 15,500 mark.
• November 2022 - today: Bitcoin’s price reached USD 42,000 in December 2023.  

What can we learn from this historical analysis? The market frequently expands and contracts - predicting when trends will emerge is no easy task. Moreover, BTC is a highly volatile asset, which can experience sharp intraday variations. 

Time and time again, BTC has proven it can rebound after strong downturns, but investing lump sums at the “wrong” time can have costly consequences. That’s why many investors opt for a progressive investment plan on BTC, with regular entries smoothing out price variations over the long term. For instance, had you invested $100 a month in bitcoin over the last 4 years (starting 6 December 2019), your investment would have returned +110% (source: dca-bitcoin.com).

… But There is Always Room For Growth for Future-Focused Investors

Crypto’s overall trajectory is promising. It’s still a very young market compared to traditional financial assets (Bitcoin was launched in 2009 and Ethereum in 2015) and it is already enjoying rapid adoption rates, with hundreds of new use cases emerging. In a few years, the number of Ethereum unique addresses (the “account number” used for making transactions) has grown to 170M. On Bitcoin, this figure has outpaced 1Bn. 

The technology also keeps expanding, as a devoted ecosystem of developers and entrepreneurs look to improve capabilities and promote new use cases. A recent example is  Ethereum’s Merge. Following this major upgrade, transactions on the Ethereum blockchain consume 99% less energy. And that’s not all: the Ethereum Foundations has announced 5 more developmental phases to drastically reduce transaction fees and increase the network efficiency, all for scale and mass adoption. 

Bitcoin Has the Potential to Become an Inflation Hedge 

Inflation can make a serious dent in one’s profit when thinking long-term. After years of extremely low inflation rates, annual inflation figures have risen to almost 10% in the EU. Enough to concern shoppers and investors alike. 

Bitcoin has the potential to be an inflation hedge. Why? Because its supply is capped by design: there will never be more than 21 million BTC in circulation, no more units can be created. Gold and silver are also often referred to as inflation hedge assets, but their maximum supply is not as strictly limited or known. 

Thanks to its decentralised nature, no single actor can manipulate the Bitcoin network, impacting BTC’s value or circulation. Contrast this with fiat currencies (government-issued currencies such as euros or dollars) which can be printed pretty much at will by government and central banks in response to economic or political crises. 

That’s why bitcoin is sometimes referred to as a safe haven - a type of asset that is expected to retain (or even increase) its value whatever the market situation, over long time periods. BTC could then be an option to diversify one’s portfolio by investing in an asset whose very nature makes it inflation-resistant. And if BTC’s adoption keeps rising, the law of supply and demand could further help its value grow: if demand was to  rise faster than supply, bitcoin’s scarce nature would lead to a higher price per BTC.

It should be noted that while many proponents of bitcoin anticipate its potential to serve as an effective hedge against inflation, research indicates that it has not yet reached that point. 

Diversification is Your Long-Term Ally, and Crypto Can Be an Interesting Addition to Your Portfolio

Finally, it’s impossible to talk about long-term investment without mentioning diversification. Diversification is the practice of building a portfolio mixing decorrelated assets, in order to improve the risk-return ratio.  

Historically, Bitcoin’s correlation to other assets (such as the S&P 500) has been quite low. In addition, its high volatility can introduce opportunities to your portfolio. This makes it a good candidate for portfolio diversification.

Note: This article is not intended as investment advice, but provides additional information on investing in crypto and crypto-ETPs. Investing in crypto-ETPs can be seen as 'complex' and risky due to the high volatility and large interim price drops compared to traditional asset classes such as stocks and bonds. It is important to inform yourself well beforehand about the risks of crypto and crypto-ETPs, for instance by reading Peaks' essential information document and blogs, before investing in crypto-ETPs.

Know that investing takes risk and you may lose (part of) your investment.