Advocates of cryptocurrencies broadly fall into one of two camps: There are those who feel buy and hold is the best strategy, while the opposing view is that mining is the better route.
The buy and hold group will point to the better returns an investor could potentially get when prices rally compared to the slower rate of return from mining. However, they are understandably muted when prices fall.
Miners on the other hand point to the illiquidity of buy and hold and believe that a regular flow of digital currency into their wallets is a far better proposition. Plus they hold the view that being at the coal-face of a currency’s creation is the preferred option because without any coins being mined, there wouldn’t be a currency to buy and hold.
There are merits in both arguments, and as far as I’m concerned both are equally valid.
The real question people should ask when starting out in cryptocurrencies is: What outcome do I want from my investment?
Here’s why.
Someone who has a high net worth might simply be looking for a place to park their money for the long-term. Typically they might buy property, gold and silver, or business assets.
A few have seen the explosion of interest in currencies like Bitcoin, and are willing to buy a position to complement their existing investments and to broaden their risk.
A buy and hold strategy for them is acceptable as cashflow in this case isn’t a high priority.
On the other hand cashflow might be more important for someone who wishes to invest a lesser amount and build on the returns they get. Crypto mining would be a better solution in this case as it provides a regular, fairly predictable flow of income.
For most people this is a higher priority as it could help ease stretched household budgets, or be used for things like a retirement fund or perhaps to pay off expensive education and other bills. It could be used to buy out of reach luxury items too.
Mining is also a good approach for people who are interested enough in digital currencies to get involved, but who want to limit their exposure in something that has yet to gain widespread acceptance.
It’s also ideally suited for people who are fed up with the low savings rates being offered by banks and who are prepared to put some, not all, of their money to more profitable use elsewhere. This group of people are bold enough to take on a riskier proposition to gain a much better reward.
Compounding mining power can provide some exceptionally good returns over a comparatively short timespan, and as such can be a very good vehicle to help buy other assets. Many miners have seen their initial investment into hashpower grow by up to 140%, and so are quite happy despite the risk of the mining operation becoming unprofitable.
There is another group of people, and I’ll call them the speculators – or perhaps, adrenaline junkies. For them the return from mining is too pedestrian, while the buy and hold approach isn’t sexy enough. Instead they look to buy low, sell high, then buy low again.
While there have been occasions when a fall in value has presented investors with a good buying price, this is purely opportunistic.
This is only for those people who are astute enough to be able to successfully read the markets. Sadly too many people who try this get caught up in a frenzy of buying when prices are rising, and then want to bail out when they see prices fall in a bid to lessen their losses.
There are people who are fearful they’ve missed the bus, and so want to acquire as many crypto coins as possible in the shortest possible time. Often they fall for dubious schemes that promise to double or treble their Bitcoin within a given number of days, but instead they usually lose the lot.
The good news is, we’re at the beginning of the trend and the masses are still largely unaware of what cryptocurrencies are and how they can use them.
My personal strategy is to buy Bitcoin and Ethereum mining contracts, and initially compound all of the returns, then save some, invest some, and spend some.
For that I use this platform: