Some people trade cryptocurrencies. They buy the digital coins and then sell relatively quickly. It's possible to make a nice profit when the winds are in your favor. On the other hand, this kind of short-term trading can be hazardous to your financial health when cryptocurrency prices begin to sink -- as we saw happen in the latter part of 2021.
Investing in cryptocurrencies for the long term is a different approach. Instead of trying to make a quick buck, the idea is to buy digital coins that have the potential to generate significant gains over the course of years or even decades. For investors with the patience to wait on game-changing returns, here are three cryptocurrencies to buy and hold practically forever.
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1. Ethereum
Ethereum (ETH -2.37%) provides a great example of what investing in the right cryptocurrency over the long term can achieve. Since its launch in 2015, Ethereum's native token has skyrocketed more than 348,000%. But there have been plenty of major pullbacks along the way that could have caused some to miss out on those gains.
A great history doesn't always translate to a fantastic future. In Ethereum's case, though, I suspect that good things are in store for investors who wait.
Ethereum has a level of momentum that's hard to stop. It ranks as the No. 2 cryptocurrency in the world based on market cap, behind only Bitcoin. More than 40 of the top 100 cryptocurrencies are built on top of the Ethereum blockchain. Billionaire Mark Cuban predicts that Ethereum could be a monster winner this year with important new apps on the way.
A major milestone in the big Ethereum 2.0 upgrade will come this year with the merge of the beacon chain with the Ethereum mainnet. This will enable staking throughout the network. The final phase of this upgrade is scheduled for 2023. Ethereum will be much faster and scalable with lower transaction costs in the not-too-distant future. This could pave the way for years to come of increasing adoption.
2. Solana
Some of the downsides of Ethereum's current proof-of-work (PoW) protocol have opened the door for other blockchains to gain traction. Solana (SOL -3.06%) stands as one of the most successful.
Since its launch in early 2018, Solana has soared more than 20,000%. It now holds the No. 5 spot among the top cryptocurrencies based on market cap. But with a market cap of around $52 billion, Solana has a lot of room to run before it catches up with Ethereum.
There's good reason to think Solana can run quite a bit from here. It has the fastest-growing ecosystem in crypto with more than 400 projects. Solana is fast, with its blockchain capable of processing up to 65,000 transactions per second. And it's cheap: The average transaction cost is only $0.00025.
Solana has experienced a couple of high-profile distributed denial-of-service attacks, the most recent one causing its price to sink last month. However, developers have ample motivation to address any security issues. Solana seems likely to remain a top blockchain over the long run.
3. Avalanche
Avalanche (AVAX -1.04%) is the new kid on the block of the group. Its initial coin offering (ICO) was in 2020. Since then, Avalanche is up more than 2,200% and now ranks as the No. 11 cryptocurrency based on market cap.
But Avalanche could just be getting warmed up. It's a lot faster than Ethereum with the capability to process more than 4,500 transactions per second. No blockchain supporting smart contracts has a faster time to finality (the amount of time required to irrevocably add a transaction to the blockchain).
Avalanche is also ahead of Solana on another key metric: It generated far more revenue from decentralized apps (dApps) in 2021. Although Ethereum is way ahead on that front, Avalanche could gain ground.
There are already nearly 160 projects dApps in the Avalanche ecosystem. Another highly visible one is on the way with global accounting and consulting firm Deloitte planning to build a disaster recovery platform on the Avalanche blockchain. I expect Avalanche to be a top 10 cryptocurrency over the long term.
