The cryptocurrency market was recently valued around $800 billion, slightly lower than the market value of Apple Inc. (AAPL, Financial) and higher than Alphabet Inc.'s (GOOG, Financial)(GOOGL, Financial) current market cap of about $782 billion. Now with the crypto market down to below $500 billion in market cap, it clearly shows that for those involved in the currency market, the buy-and-hold strategy may no longer work, especially in cryptocurrencies.
Bitcoin has been at the center of it all. The volatility, the hype and the misconception of global trade could soon be pegged on the cryptocurrency market as they take over traditional methods of payment.
For instance, late last year the price of bitcoin came close to reaching $20,000. Now it has fallen to about $10,000. The ups and downs are hard to live with for any ordinary investor that seeks calm and steady growth.
History shows, however, that even with the pullbacks and rebounds, most markets will always trend upward in the long term, which again makes the buy-and-hold strategy a lot more viable than trying to speculate on the short-term movements.
Chart via MarketWatch
Of course, this argument may not always hold in regard to currencies. The U.S. Dollar Index has barely changed since 2009, when it was pegged around 88.50 points. It has only added 1.5 points as of January 2018, to hit 90 points.
As for other currencies, the same can easily be demonstrated using a forex trading simulator to trace back their historical performances. The simulator simply plots a map backwards based on a given strategy to determine how successful it would have been had it been implemented in the past through a process called backtesting.
With more brokers now offering trading services for both currencies and stocks, some investors are using the same simulators on listed stocks to weigh the effectiveness of their strategies before finally implementing them.
But even when you look at it from a distinct perspective, if your wealth is held in U.S. dollars, then the concept of buy and hold stands. This would imply that most people, including those not interested in the stock or currency markets, employ a buy-and-hold strategy.
Chart via GuruFocus.com
But this is pretty much a stock market approach rather than a currency trading strategy. A simple glance at the S&P 500 Index chart tells the complete story. Even when everything seems to have stopped working, the buy-and-hold strategy will always work out, barring the unique circumstances of a given asset.
Currently, the cryptocurrency market seems to be dictating the dynamics of the financial markets. Every major shake in the cryptocurrency world has affected the stock market significantly with a subsequent decline or rise in related stock prices. And the scariest thing about this is most companies are looking to invest in the disruptive force of blockchain technology, which hinges on the success of the cryptocurrency market.
While some people have been reluctant to establish the link between the two markets, others have been quick to point out cryptocurrencies like bitcoin and Ethereum could trigger the beginning of the next global financial crises.
Would it be wise to buy and hold given the expected consequences of a stock market meltdown? Well, the S&P 500 index chart above clearly shows that after the 2008-09 financial crisis, the market has rebounded and assumed an upward trend that just about eliminates the effects of the stock market crash experienced during the recession.
The buy-and-hold strategy is associated with value investors that are in no hurry to cash out their investments. However, it makes even more sense to dividend investors because the goal, in this case, is to receive dividends over time as you hold the stock of a given company.
However, the hype surrounding the cryptocurrency market and the growing interest in short-term investing is relegating dividend and value investing to retirement investors, while the youth are mainly looking to juggle the short-term fluctuations as they seek maximum profits.
Conclusion
In summary, investments are meant to be long term, but most people will agree that even when we say long term, the time frames must be properly defined. Some people say three to 10 years, but Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) has held some stocks for way longer than 10 years.
A regular re-evaluation of positions held is required, however. For short-term investors and traders, some of these time frames may be irrelevant as they rely more on historical data than the outlook. Either way, the buy-and-hold strategy remains a pivotal element for a balanced portfolio. It still works.
Disclosure: I have no positions in any stocks mentioned in this article.
