The road to crypto riches is littered with bad trades . . .
There's a lot of talk about holding your crypto forever because someday, well, it'll be worth bank. This is especially strong now in a mini-bull run, and yet buy-and-hold is only one strategy among many.
For the HODL'ers who are Holding-On-for-Dear-Life, the idea is that longer term their assets will on average go up in value. Since they (and no one else) can time the market perfectly, they surmise that buying when they can and waiting for the full potential of the crypto market to be realized (i.e. mass adoption) is the best way to make money. In some countries (like the U.S.) holding for longer than a year also has some tax advantages.
But are all crypto worth holding until some undetermined point in the future?
Dollar Cost Averaging
If you're convinced that what your holding has long term potential then sure, ignore the current price (high or low) and dollar cost average if you've got the funds. For many, a fixed time/day each week or month is an easy way to keep adding to a holding without chasing price movements. It's a tried and true investing strategy in teh traditional financial markets over a long enough time frame (enough for the average price to work in your favor through bull and bear markets.)
Selling the Wave/Cutting Losses
But, if you've held on to a microcap that just never gained traction and right now the price is riding a new wave of enthusiasm (without any major developments), then it might be time to unload it and move on to less risky projects. A look at the top cryptos by market cap from August 2013 vs. August 2021 show how holding may have meant a ride to the bottom that never recovered for seven out of ten. Ever hear of Namecoin, Peercoin, or Feathercoin?
This may also be true if a holding is just not moving despite a surge in Bitcoin and other crypto prices. If this is the case, here are a few questions to ask about underperforming assets:
- Is the microcap the number three or four among similar companies (e.g. in decentralized storage for example)?
- Are they late to market among their competitors?
- Do they have any technological or business advantage (e.g. partnerships) that may propel them to a market leadership status?
Profit-taking
Another strategy involves selling some during a relative high and pocketing the amount you initially invested plus some healthy profit. The rest is left in the market while your gains are protected. It's often referred to as "playing with the house's money" in a reference to casino gambling because only your profits are still at stake.
Psychologically this can be reassuring that you can't lose it all. Since many people may be new to investing it's a less risky strategy, but with less potential upside.
Overall, you have to do what you think is the right move for your circumstances and never mind the useless chatter.
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For more analysis: PUBLISH0X Blog, @BKCrypt01, and on Reddit.
Note: not financial advice, just observations/opinion. Always do your own research.
Photos by Chor Tsang on Unsplash and Frank Busch on Unsplash
