It is often said that the stock market is a tool for transferring money from the impatient to the patient. This notion can be said to be true for the cryptocurrency market, too, since the two markets are similar in many ways. Just like you would with stocks, you can buy, sell, or hold onto cryptocurrencies for an extended period.
The only difference between the two is that the stock market is more predictable compared to the highly volatile cryptocurrency market. As such, trading in the crypto market – whether you’re actively trading or holding your funds – can result in dramatic and sudden losses or profits. This volatility can be attributed to the fact that cryptocurrencies don’t have a concrete product backing them. Their value mainly stems from the market hype, demand, and their use in the real world.
Yet, no one invests in cryptocurrencies intending to lose money. This explains why holding or selling your cryptos might make sense for the two extremes of the market – bull and bear run.
An Argument for and Against Holding Cryptocurrencies
In almost every crypto community, you’ll meet a few investors advising you to HODL your coins. The strategy has been proven to work, especially during the early years of cryptocurrencies. A case in point is coin holders who purchased Bitcoin when it was trading at less than $100. Over the years, these investors have seen a great return on investment, as Bitcoin’s value continues to increase.
While this strategy has ultimately paid off, it has its demerits. First, coin holders often miss out on making additional profits as the market trends change over time. They continue to hold on to their cryptos even at a time when they should arguably sell a percentage of their positions, particularly during the market highs, to add on to their profits.
Also, for new investors who get into the market when the prices are high, it can be quite hard to HODL when the market is “bleeding”. As a result, the investors end up making losses due to panic-selling as the crypto prices decline.
Holding is recommended if you are looking to make profits in the long term. Besides, as blockchain continues to gain mainstream attention, the value of cryptocurrencies is bound to increase. Of course, throughout this period, there will be dips and highs, which you can be leveraged to add a substantial amount of returns. Ideally, when the market is in a downward trend, you should hold your coins or, better still, buy some more.
Buying at a lower price allows you to increase the number of coins that you hold. It works even better when you employ the dollar-cost averaging strategy. Once the asset’s price goes up by several folds above your initial investment, you might consider selling a percentage of your position.
Should You Sell Your Cryptos?
Selling or rather trading cryptos is defined as ‘fast nickel over slow dime’. This means that as a crypto trader, you are in the market for quick profits rather than huge profits over a long-term period. The rationale here is that the market’s volatility is a powerful instrument of gaining small but quick profits.
To realize profits, you’ll have to quickly liquidate your crypto-assets when the price starts to fall in order to hedge against further losses. When the bull starts to reign, you can then re-enter the market and sell the coins once the price rises by a great deal in a short amount of time.
Just like holding, selling has its share of disadvantages. To start with, In a bull market, you are likely to take profits too early before a coin reaches its highest price. In the worst-case scenario, you could also sell your coins during a downward trend, only for the market to turn bullish shortly afterward.
Ideally, you should sell a cryptocurrency when it’s price sharply increases over a relatively short amount of time. Often, a significant increase in price without a strong demand to hold it up isn’t always sustainable.
Note that you shouldn’t sell all your coins at once, but rather just a portion of it and buy back when the prices start to fall. The exact percentage of coins you should sell depends on several factors, such as the total amount of coins in your possession as well as their liquidity. The general rule of thumb is to sell 20% of your coins. But if you own a large amount, consider lowering this percentage to maintain liquidity.
Selling and buying back in at a lower price offers you the opportunity to regain your initial investment as well as to invest in a new cryptocurrency for diversification. This way, you spread the risk, protecting you in the event one asset takes a dive.
Which One Is Better?
There isn’t a straightforward answer as to which strategy is better between holding and selling. It’s all about finding the sweet spot between the two. This is to say that holding cryptocurrencies is better when punctuated with leveraging into and out of positions.
For new investors, holding is your best bet as you try to learn the market. At the same time, it would be unwise to continue holding through, even when the market is on a bull run. The best approach is to cautiously leverage into profitable positions and gain short-term profits. Besides, trading is the only practical way to learn the market.
Taking a closer look at the long-term price chart of a cryptocurrency can give you a rough idea of its price routine. Although this is by no means a foolproof prediction of future prices, the historical data can give you a fairly decent estimation of when to sell, hold, and buy to increase your position.
The key takeaway here is that investing is a long-term commitment. While you are at it, making smart investment choices such as selling for short-term profits and buying the dips will serve you just right in anticipation of huge gains in the long haul.