My investment philosophy can be summed up as follows:
Buy the dip and hodl
Why Should I Hold Ether Long-Term?
Long term, I believe that Ethereum will prove to be one of the most dominant cryptocurrency platforms (perhaps the dominant platform due to the huge amount of active developers and projects in the Ethereum ecosystem.)
Of course, this is based on the assumption that Ethereum will go from strength to strength in the long run. You can read some of the arguments in favour of holding Ether as a long-term investment here. An additional, future benefit will be that in future, you will be able to earn a percentage income based on your Ether holdings (similar to a shareholder earning a dividend).
One example of Ethereum’s rising dominance is daily transaction volume, compared to Bitcoin and Litecoin, two other very popular cryptocurrencies:
Chart courtesy of BitInfoCharts
What are the advantages of a buy and hodl approach?
- Low stress – ignore your portfolio most of the time
- Beginner friendly – it’s possible to recover from missing the best price in a given time period by simply waiting, and ignoring the market
- Low time commitment – you can ignore most ups and downs in price
- Historically, this produces greater returns than actively trading the market
Ok, but WHEN Should I Purchase Ether?
My approach involves following simple rules so I don’t have to think about my investment most of the time (I am slightly addicted to checking my portfolio often, but this is optional!). For decisions on when to buy, it’s fairly straightforward.
- Wait for a large market crash in the price of Ether (you can set Ether price alerts in the Coinbase app, tutorial here). I like to see the price declining by 30% or more over the period of a few days to a week or so (“buy the dip”). This means a lot of patience – perhaps waiting for months, doing nothing. It also means ignoring news headlines about new highs in the price!
- Purchase only what I can afford to lose. I don’t buy an amount that would affect my ability to pay rent, groceries or cause me to lose sleep if it all disappeared.
- Login to Coinbase, and deposit my required amount in fiat (perhaps US dollars, Euros or British pounds in your case.) Wait for it to clear into my account. Purchase at my desired price. Note that you can automatically purchase Ether without fees by using limit orders in GDAX, when a pre-defined price is reached. GDAX is a sister brand of Coinbase’s.
- [Optional] Since I hold Ethereum in the long-term, I recommend moving your Ether off Coinbase and onto an offline wallet, such as MyEtherWallet. Here is a tutorial on how to use MyEtherWallet to backup your Ether offline, safe from hackers.
- Go back to step 1, and mostly ignore the market.
Timing the Market
Timing the market is often regarded as impossible (especially in the stock market) and this is certainly true. However, by observing a crash, waiting for the prices to settle somewhat (seeing the prices settle around a narrow price range for a day or two) you can certainly improve your return, even if you miss the absolute lowest price. This strategy can work in cryptocurrency markets, due to their extreme volatility (booms and busts happen with much higher frequency compared to other financial asset classes) and the relative immaturity of the market (extreme herd mentality and new buyers entering the market during all time highs in the price).
An example of a buying opportunity recently:
Even if you missed the absolute lowest price- you still win in the long run! This is the beauty of “buy the dip and hold” strategy.
What Happens if the Market Continues Downwards?
Don’t panic. If you obeyed the rule two above of only purchasing what you can afford to lose (you did obey that right???) you can ignore the price of Ether on any given day. In the long run, Ether will likely recover strongly.
When I buy Ether, I buy it with the intention of not selling it for years, perhaps never. The main reasons I can imagine myself selling are – the team abandons the Ethereum’s original vision, a key team member cannot work on the project any longer, or a personal reason that is unrelated to Etherum’s strengths.
Cryptocurrency market crashes often begin with Bitcoin (BTC). Bitcoin is the big, legacy player in the market, and it’s price moves often affect other cryptos. Therefore, you might find it useful to set price alerts for Bitcoin (symbol: BTC) in addition to Ethereum.
I use Blockfolio to check my crypto portfolio, available as a free app for iOS and Android. Highly recommended.