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Unlikely Pairing: A Long-Term Investor’s Take on the Top 3 Cryptocurrencies

When it comes to creating a long-term buy-and-hold strategy, many investors blanch at the idea of ​​adding cryptocurrencies to their portfolios. Yes, crypto is a highly volatile and speculative asset class, so adding it to an investment portfolio you expect to deliver superior long-term gains can seem like an unlikely pairing.

However, several of the top cryptos are starting to develop a historical track record of success. Bitcoin (BTC 2.46%)for example, recently celebrated its 14th birthday. Ethereum (ETH 2.43%) was announced by blockchain pioneer Vitalik Buterin almost nine years ago. These cryptos have seen their share of market corrections and crashes and have emerged as the most popular investment options for crypto investors. With that in mind, here’s a long-term investment perspective on three of the top cryptocurrencies.

1. Bitcoin

Bitcoin was, quite literally, the first buy-and-hold cryptocurrency (although Bitcoin investors prefer to use the term HODL instead of “hold”). And for good reason. If you bought Bitcoin back in 2009 and held on until now, you’d be up a whopping 16,979.47%. Moreover, Bitcoin has repeatedly bounced back from market reverses and even market crashes. If you thought 2022 was rough, just look back to 2018, when Bitcoin fell by 73%.

Taking a long-term perspective on Bitcoin, there are two reasons to be optimistic about this crypto’s future. One is that Bitcoin has a fixed coin supply. Only 21 million bitcoins can ever be created, so they are only going to become more scarce and more valuable over time. This is due to the algorithmic nature of Bitcoin, which specifically defines how much Bitcoin can be mined. It’s for this reason that people refer to Bitcoin as digital gold. Just as the Earth’s supply of gold is limited, so is the Earth’s supply of Bitcoin.

Image source: Getty Images.

The other reason to be upbeat about Bitcoin’s long-term prospects is that it is increasingly being integrated into the world’s economy. So, by investing in Bitcoin, you are gaining access to tremendous global diversification. Right now, only a handful of nations like El Salvador are fully embracing Bitcoin. However, hard-core Bitcoin bulls believe that crypto will eventually replace fiat currencies in the world’s financial system and that all nations will eventually rely on Bitcoin in some form.

2. Ethereum

Ethereum, just like Bitcoin, has delivered superior returns over its lifetime. If you had invested in Ethereum back in 2015, you’d be up a head-spinning 56,832.35% by now. What makes Ethereum so attractive to long-term investors is how much utility it offers. While Bitcoin is primarily just an online payment option, Ethereum provides the blockchain infrastructure for developers to build applications, games, metaverse worlds, and just about anything else that you can imagine related to Web3. Ethereum introduced the world to smart contracts, non-fungible tokens (NFTs), and decentralized finance (DeFi), so its reputation as an innovator is well-deserved.

You could also make the case that Ethereum is now built for the long haul, given its recent technological upgrade. Before The Merge, Ethereum was relatively energy-intensive, slow, and inefficient. After The Merge, Ethereum’s energy consumption is expected to fall by 99.9%, and it will become faster, more cost-effective, and more efficient. Investors no longer have to worry as much about some new upstart challenger topping Ethereum from its position as the top Layer 1 blockchain network.

3. Binance

Finally, there’s binance (BNB 4.10%), which now has a market capitalization of nearly $50 billion. While many investors think of Binance as the world’s largest cryptocurrency exchange, Binance is much more than that. Binance is a Layer 1 blockchain, just like Ethereum, and that means people can build on top of Binance, just like Ethereum. This has given rise to a very vibrant blockchain ecosystem that includes a popular stablecoin, as well as apps, games, and Web3 projects. Binance is well-known within the crypto world for incubating new projects and new coins.

However, as we saw with the recent FTX (FTT 8.78%) meltdown, Binance’s truly global reach into every aspect of the crypto world means that it often runs across competitors and rivals in unexpected ways. In the case of FTX, it meant an epic showdown with former FTX Chief Executive Officer Sam Bankman-Fried. In other cases, it means that Binance sometimes runs afoul of national regulators and law enforcement officials, as in the case of the ongoing US investigation into Binance for potential money laundering. On the basis of Binance’s extensive legal and regulatory risk, I’m somewhat skeptical about Binance holding onto its market-leading position for the next 20 years, so I can’t recommend it as a long-term investment.

The case for buying and holding Bitcoin

Of the three cryptos here, Bitcoin has the clearest path to becoming a trusted part of your long-term portfolio. It is the undisputed market leader in terms of market cap, it is the favorite of both retail and institutional investors, and it has a truly long-term global growth strategy that extends until the year 2140, when the last bitcoin will be mined. If there’s just one crypto to add to your long-term portfolio that you can buy and hold forever, it’s Bitcoin.

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