HODL or Sell?
Is crypto over? Is this the end of the bubble? Was it all a scam and have I lost all my hard-earned pennies now?
With Bitcoin (BTC) having fallen some 22% in the past 7 days and at its low point sun 50% of its all-time high, these are questions that many people are currently asking themselves for the first time. For many, 2020 and 2021 have been marked by their first investment in cryptocurrencies, where the initial motive has often been pure boredom, followed by a sense that this is the opportunity of a lifetime to get rich quick. This huge influx of new investors can be seen, for example, in the number of active Bitcoin addresses, which has increased by some 35% over the past year.
Clearly, many of these beginners still know little about the extremely nuanced technology behind true cryptocurrencies, or the speculative but grand theories about how and why crypto will transform today's society. Surprisingly, it doesn't. Whether we're talking about crypto or stocks, most people just want to soak up the sun, enjoy life a little, and occasionally FOMO in some hype they heard about on the Internet. That is, of course, a great way to stay poor. But newcomers to the 2020 crypto bull market have been indoctrinated into an even better approach to losing all your money: speculative day trading. A way of investing that pays almost no attention to fundamentals, but mainly looks at charts and buys and sells based on technical analysis. Instead of buying an asset and holding it for a number of years, day trading is much faster.
Yet a 2016 survey by eToro found that 80% of day traders lose money over the one-year time frame. So why is this always so popular among beginners anyway? In fact, the median 12-month return of all traders in eToro's dataset - not just those who lost money - was a loss of 36.3%. Day trading finally proves not to be as easy as it seems, and a huge amount of discipline and emotion control is required to be successful.
Meanwhile, longer-term investors are using price declines to expand their holdings with cryptocurrencies they believe in for the long haul. This is at the heart of one of Warren Buffett's most famous investment adages:
And today, with the overall crypto market cap down nearly 20%, is a good time for recent newcomers to the crypto market to consider whether they want to remain speculative day traders or become investors.
If you were a Bitcoin day trader in 2013 and ended up selling your positions at a 100% profit, you could have been beating yourself up right now. If you had stepped in at the end of 2017 and started as a day trader only to see the whole market plummet and lose all faith in crypto, you would have beaten yourself up now too.
As an investor, you ignore such price fluctuations more easily, because you invest in things you are knowledgeable about and believe in. And if you had invested in Bitcoin in 2013 and were still holding on to those investments 8 years later, you would probably have given yourself a nice pat on the back by now. So today is the day to ask yourself: Why did you buy the crypto that is currently destroying your hopes of ever owning a house, let alone a Lambo? Did you have a reason? And if so, has that reason changed? Or do you have no reasons yet and still hesitate to just cut your losses? If not, below are four reasons why it might be time to become a long-term investor.
With Bitcoin (BTC) having fallen some 22% in the past 7 days and at its low point sun 50% of its all-time high, these are questions that many people are currently asking themselves for the first time. For many, 2020 and 2021 have been marked by their first investment in cryptocurrencies, where the initial motive has often been pure boredom, followed by a sense that this is the opportunity of a lifetime to get rich quick. This huge influx of new investors can be seen, for example, in the number of active Bitcoin addresses, which has increased by some 35% over the past year.
Clearly, many of these beginners still know little about the extremely nuanced technology behind true cryptocurrencies, or the speculative but grand theories about how and why crypto will transform today's society. Surprisingly, it doesn't. Whether we're talking about crypto or stocks, most people just want to soak up the sun, enjoy life a little, and occasionally FOMO in some hype they heard about on the Internet. That is, of course, a great way to stay poor. But newcomers to the 2020 crypto bull market have been indoctrinated into an even better approach to losing all your money: speculative day trading. A way of investing that pays almost no attention to fundamentals, but mainly looks at charts and buys and sells based on technical analysis. Instead of buying an asset and holding it for a number of years, day trading is much faster.
Yet a 2016 survey by eToro found that 80% of day traders lose money over the one-year time frame. So why is this always so popular among beginners anyway? In fact, the median 12-month return of all traders in eToro's dataset - not just those who lost money - was a loss of 36.3%. Day trading finally proves not to be as easy as it seems, and a huge amount of discipline and emotion control is required to be successful.
Meanwhile, longer-term investors are using price declines to expand their holdings with cryptocurrencies they believe in for the long haul. This is at the heart of one of Warren Buffett's most famous investment adages:
Be afraid when others are greedy. Be greedy when others are fearful
And today, with the overall crypto market cap down nearly 20%, is a good time for recent newcomers to the crypto market to consider whether they want to remain speculative day traders or become investors.
If you were a Bitcoin day trader in 2013 and ended up selling your positions at a 100% profit, you could have been beating yourself up right now. If you had stepped in at the end of 2017 and started as a day trader only to see the whole market plummet and lose all faith in crypto, you would have beaten yourself up now too.
As an investor, you ignore such price fluctuations more easily, because you invest in things you are knowledgeable about and believe in. And if you had invested in Bitcoin in 2013 and were still holding on to those investments 8 years later, you would probably have given yourself a nice pat on the back by now. So today is the day to ask yourself: Why did you buy the crypto that is currently destroying your hopes of ever owning a house, let alone a Lambo? Did you have a reason? And if so, has that reason changed? Or do you have no reasons yet and still hesitate to just cut your losses? If not, below are four reasons why it might be time to become a long-term investor.
The 4 reasons
- 1. Humans are always striving for more globalization in order to make processes more efficient and cheaper, and there are strong arguments that crypto is in some cases a more effective medium for cross-border payments than the traditional banking system.
2. the pandemic has left a huge crater in national budgets, increasing debt issuance and threatening inflation, especially in the US dollar. Many believe that Bitcoin is the perfect hedge against inflation because Bitcoins cannot be reprinted forever.
3. Decentralized Finance (DeFi), which uses blockchain's trustless base layer and automated smart contracts to issue and service loans, grew 7.239% between January 2020 and April 2021.
4. Cryptocurrency is the only viable 21st century solution to financial censorship, a huge risk of the digital age that gives governments and private companies enormous power, and is only growing.