One question that frequently arises within the crypto-trading community is whether you should hold altcoins for the long term or sell them for short-term profits.
There is no definite answer for this, but there are indicators which will help you determine the plausibility of a token being a long-term hold asset. Today, we take an analytical approach to considering this.
When to enter an market?
Firstly, it is important to consider the current cycle of altcoins; once an altcoin has been created via ICO, due to the nature of traders it is very likely for the coin to be quite volatile once it has been listed on exchanges.
Many investors in ICOs are interested in the short-term gains that the tokens have to offer. For that reason the tokens generally are quite volatile once listed on exchanges.
This is definitely not a time to purchase if you are looking to hold for the long run. Volatility is high and there is a chance the market is simply trying to dump the token in reaction to external forces. Wait until there is stability in the market.
Market volume & volatility
The amount of volume traded in the market along with the volatility is an indicator to look for from a technical standpoint.
A large average daily trading volume suggests liquidity in the market. There is demand for the token and supply to match. How is the trading volume over longer periods of time? The volatility will determine whether there is stable trading volume or this is simply a reaction to external market forces.
If you’ve traded in the crypto-space for some time you will know that the market is very reactive to external forces, partnerships, regulations, major announcements. Traders react to these events and in term either buy or sell market volatility.
Token velocity is a key factor to consider that impacts long term, non-speculative value. Token velocity refers to the rate at which cryptocurrency is exchanged from one transaction to another and how much unit of cryptocurrency is used within a given period of time.
Kyle Samani gives a great breakdown of the how velocity works and examples in the crypto space. If the token is exchanging too quickly, it means there is little incentive to hold the token for the long term.
Tokens with the single use case of being used to facilitate transactions on a platform suffer from this as there is no intrinsic value gained from holding the token if you are not using the platform.
Look for tokens where traders are not trying to liquidate instantly.
Is the Token mineable?
A mineable token is a sign that the token may be able to withstand the test of time. Coinwarz shows a comprehensive list of tokens which have the ability to be mined and the demand for them. If the network hashrate is high that indicates that there are many users mining the token, which helps with volume and liquidity in the market.
Length of time in the marketplace
With the rapid emergence of ICOs and tokens that are being listed onto the market in turn, the length of time the token has been in the market place does have some significance in terms of longevity.
Tokens are very reactive to market forces, and coins which have not been around for a longer time may not have been exposed to these forces yet.
Bitcoin has gone through the bitcoin boom, government outlawing, corporate ousting, huge laundering schemes, and full-scale drug marketplaces utilizing it, yet it still stands the test of time. Not to mention Bitcoin’s lack of centralized governance.
The point being here that the longer the altcoin has been on the marketplace, the more external market forces it has been exposed to. If it lives through the FUD that is generated from these events, it shows that investors will stand by it not just for short-term gains.
When holding tokens for the long term, it’s important to address that we are in a rapid emergence environment right now. Tokens are listing left, right, up, and down, and speculation is rampant.
Holding altcoins for the long term can be a risky move, but if you are less risk averse and willing to see past the speculation, you might just end up hodling the next Bitcoin.
TLDR: Not all altcoins are created equally. Accordingly, there are numerous important considerations you need to make before going all in on a coin long-term.
*About the author: Heremaia is a crypto strategist who works with business leaders looking to launch ICOs. A typical meeting with him would consist of addressing the needs of business leader, laying the groundwork for integrating their concepts into the blockchain and then advising a roadmap step-by-step from concept through tokenization and beyond. He can be reached at firstname.lastname@example.org or on Telegram @heremaia.