Blindly holding isn't a crypto strategy - you need an exit point
In yesterdays Daily Crypto Update ("NEO saves the day"), I teased out that I would be writing about why holding is not a crypto strategy and received a comment on the post questioning whether what I am saying is FUD, to get more people trading to drive the markets to support my goals.
FUD is a term often used in crypto circles and means Fear, Uncertainty and Doubt. The implication being that you can manipulate a mindset to make people act in a way which suits you. You will often see FUD articles on Reddit which usually serve the purpose of the person posting the content. I want to address this early on:
- I do not write FUD articles. That would make me a dick. I write openly and honestly about my trading strategy, how it has developed and the trades I make.
- I do not claim to be an expert and tell everyone to develop a strategy which suits them and do not copy my trades. I am yet to find out whether I am smart or lucky.
- I doubt very much that I can manipulate the market with the small audience which is reading my content. I have less than 100 followers on Twitter, less than 200 people in my Facebook group and the website reader numbers are in the low thousands.
My intention is by no way to create a cult of loyal followers who blindly follow my strategy, if you want to follow expert traders then I suggest you check out The Wolf of Poloniex or Crypto Picasso. I am still learning myself and am much more interested in creating a community who can work together and learn from each other. Only this week I sold out half my NEO position only to miss another huge jump yesterday. If you had blindly copied me, then you would also have missed out.
Okay moving on. The reason I am writing this article is that holding on its own is not a strategy; you need an exit point. Okay, so one day Bitcoin and even other cryptocurrencies may become global payment methods, and you won't ever need to convert back to Fiat, but this may be a long way off. That said, even Bitcoin isn't a great payment method at the moment as some transactions can take an hour. Who wants to wait an hour for a pint down the pub while waiting for a transaction to confirm? And anyway, if you are buying beer you are not holding, you are spending. Even in this scenario, you have an exit strategy; your exit strategy is to use Bitcoin as a currency.
When I first started trading Bitcoin and crypto, my goal was to create a pension pot. I chucked a lump into Bitcoin, Ethereum and a few other cryptos, with the hope of being able to liquidate in 10 years and have a fund to support my retirement. A hold strategy with an exit strategy.
The thing is, like almost every one I know, I started out holding but quickly started trading. This is a natural evolution, we all do it. Once we learn about the returns available with smart crypto investment we want to start buying more. Then we see spikes and sell, see new opportunities and buy and before you know it you are a trader.
I am writing this article to raise attention to the belief that blind holding of any crypto has risks.
Remember, nobody knows what will happen, we only speculate. Bitcoin could have peaked; it may now drop and never see the high prices we have today. I don't think this will happen, but it could.
The main issue I have with blind holding is that it often justifies bad trades or life gambles, for example:
- "I bought Ethereum at $400, I believe it will change the world, and I am holding for the long term". Sure, what you mean is, I had FOMO, I bought more than I should at a stupid entry point, and now it has dropped to $145 I am shitting myself.
- "I sold my house and put it all into Bitcoin; I will be a millionaire in 10 years." Sure, what you mean is, I have gambled your life on a new volatile market.
Sure, Ethereum will probably rise above $400 at some point, Bitcoin will probably keep climbing, but who knows right? Bitcoin spiked at around $1,200 in late 2013 and then entered a two-year bear market.
The problem with holding rears its ugly head during a bad trade. A great example of this is Ripple, which spiked at over $0.40 earlier this year and has been in decline ever since, dropping to under $0.14 and now sitting at around $0.18. Reddit is full of long term holders who bought high and shooting out their hold memes.
While holding with a coin such as Bitcoin can work as it has been setting new highs since it was invented, it does not mean this will work for other coins. This blind belief that every crypto will always go up forever is madness.
A perfect example of the stupidity is with posts on Reddit like this:
So what the person who is posting this is saying is, you go to bed and then wake up and Ripple jumps nearly 3,000% and has a market cap of around $149,512,621,407. Yeah sure. What happens if I go to bed and wake up with two Victoria's Secret models in my bed? It would be cool, but it isn't going to happen.
Crypto brings in new investors every day, this kind of nonsense can lead to bad trades and losing money. This is then reinforced by the belief that just by holding you will one day be rich.
Remember, nobody knows what will happen.
Sure, have holding as part of your strategy but what is your exit strategy? What are your short term goals? What happens if an investment turns on you? Have you invested more than you can afford to lose? What happens if you make a trade and two years later you are still in negative.
The other primary issue I have with hold as your only strategy, especially when invested in a single coin, is that you miss out on other opportunities. Ripple is another great example of this. Those who went all in on Ripple with a hold strategy during the May spike had investment locked up during the current market resurgence.
You may think I'm an idiot, cool, tell me to shut the fuck up. If hold is your only strategy then my advice would be as follows:
- If you must hold and must do it with a single coin, make it Bitcoin, it is the most likely crypto investment which will be higher than it is now in the long term
- If you must hold, then please have a diverse portfolio which includes a range of investments so that you are tied to crypto as an index investment
- Ensure that you are emotionally prepared for market volatility
- Do not invest anything you can't afford to lose
So how does holding play a role in my strategy? Well, it has evolved. I started out with a hold strategy and 10-year exit but have actively increased my trading as I have become more confident with the markets.
Remember, as I keep saying, I don't yet know if I am smart or lucky. I am now at +900% returns and growing. There are people out there investing in crypto who have done much better than me. They may have bought more Ripple, Ethereum, NEO, etc. when I did and exited at a better point. Who knows?
My strategy is based on my goals. My original goal was to invest a lump and exit in a few years, hopefully with a profit which supports my retirement. I have got lucky, made more than I ever expected, and I decided to see if trading crypto could give me an income which means I no longer have to work. I used to work 60 hour weeks, growing a company with the hope of an early retirement. I didn't see my kids much and I was fat and unhealthy.
As such my new goals are based on time. For me, time is the most valuable thing we own; it is all we have right now. Ask anyone facing the end of their life whether they would give up everything they own for more time; I expect they will say yes.
Since I quit work a year ago, I have come to appreciate time. Time to spend with my family, time to pursue personal interests and time to travel. All money is doing now is facilitating what I do with time.
I have no interest in going back to 40-60 hour weeks, sat in an office, getting up early, getting home tired and waiting for the weekend. My goal is to have as much time as possible to do what I want and to wake up every day and know I control my time.
While I have switched to being a crypto trader. I have no interest in trading full time, all day, every day, watching the markets. This is swapping an office for the kitchen table, no thanks.
My strategy is therefore based on the following goals:
- Own my time to do with it what I chose
- Work as little as possible
- Make enough money to facilitate what I want to do with my time
Crypto has presented me with a once in a lifetime opportunity and I fully understand and appreciate that this may end at any point.
I have developed a strategy of hold trading which supports my life goals based on three fundamentals:
- I buy coins for the medium to long term which I feel will grow in value
- I rebalance my portfolio based on tiered investments, primarily investing in Tier 1, long term stable growth coins supported by speculative investments on small/new growing coins which might see significant gains and accelerate my stable coins
- I take money off the table, 5% for each 25% up, to give me an income while still benefiting from compound growth
There are alternative strategies. There are others who will have made significantly higher returns with a different portfolio, there are people who will have made lower returns, and there will be people who have a loss. This is me, and this is my strategy, and it is working for me.
I support this strategy with other the following:
- I don't chase coins on the move (I have done before, sometimes making money and sometimes losing)
- I don't day trade, I'll write about this specifically at some point but day trading takes time and dedication, and I don't want to swap 60 hour weeks in an office for 60+ hour weeks watching the markets
- I don't get emotional; I accept volatility
- I don't beat myself up about trades, I make them based on the information in front of me at the time, and I accept everything that happens
A great example of the last point is NEO. I have been gradually liquidating my portfolio this week. It is now a quarter the size of what it was a week ago. I made really good money over the last 24 hours; I would have made more if I had just held out, but I was happy with the returns and wanted money off the table. Each time it spiked I thought it had peaked and it has gone up further. So be it. I may re-enter NEO at some point, likely when it dips followed by price stability. That price may be higher than it is today. I am fine with this as I will be entering to make a profit on the next move and ignoring any movements in between.
On a final point, the comment on yesterdays post said:
Firstly I am not a professional. Secondly, basic economic rules of supply and demand counter this point. If people hold, they are reducing supply and thus driving up the market price. I would make more money by everyone holding. By encouraging people to consider trading alongside holding I am working counter productive to my strategy. I just know that I do not have the clout to influence the market and my blog is based on sharing knowledge.
I have also got out of the mindset of saying HODL, talking about going to the moon and owning a Lambo. Memes distract the reality of markets and I want to be as focused towards my goals as possible.
This post may be controversial; please do ask if you have any questions.
Also remember, this is not financial advice. Trade how you see best and develop a strategy which works for you. If you copy any of my trades or any part of my strategy you do so at your own risk. What works for me may not work for you. Also what works for me right now may not work tomorrow. I accept that we are in a bull market and it is no test of how good a trader I really am.