You knew it from the start – this trade was going to be a winner. You’ve read every Tweet, every Telegram post, every inch of the website. You’ve scoured Linkedin and know everything about the dev team, and it’s finally paying off. Weeks of sideways movement and low volume days on barely functional exchanges has given way to a massive bull run. Maybe it was an announcement, a press release, perhaps it’s for no reason at all, but the rocket has left earth, and you’re on board.
Your coin has broken free of the gravity of its previous limits, and surges upward into the unknown. Your heart hammers in your chest as the first stage boosters separate and fall back to Earth. We’re slowing down, is this the top? Blocks of buy and sell orders paint the order book in rapid fire succession as traders feverishly attempt to profit before the flight apex.
All at once, the trade volume flattens. The vessel drifts dreamily through the void as traders wait with bated breath in the deafening silence. A massive wall of red fills the order book. You smirk at the weak handed traders fleeing at the first sign of trouble.
Your steel grip has been hardened by fire. A resolve tested time and time again has prepared you for this, and not a single coin will leave your hand.
The vessel shudders as the second stage boosters roar to life. The barrier of new highs is shattered once again; there are no resistances overhead, save for psychological. The trading is even fiercer this time, the upward trajectory more choppy and inconsistent than before. Just as you feared, the second stage boosters aren’t as reliable as the first – but they’ll get you there. The coughing and sputtering of the thrusters becomes more frequent and prolonged, and for a moment you fear they’ll tear the entire vessel apart.
But she holds together, and the engines fade from a roaring flame to a faint glowing ember. You drift calmly onward, knuckles aching, but you feel pride swelling in your chest knowing that you survived the flight, and will not be selling any time soon. That was a hell of a ride.
As every trader who has held through a new all-time high, only to be left bleeding for weeks or months thereafter knows that long term investing requires nerves of steel, or the ability to confidently ignore intraday price movements. Holding, or “hodling” is a concept that goes hand in hand with trading cryptocurrencies in some circles. In contrast to pump and dump strategies, holding relies on increased perceived value, and therefore trader and additional interest of a coin over time.
Accomplishments, strength and performance of the developer team, amount of funds raised, and control over a particular market niche are typically the reasoning for holding onto a coin long term. Removing emotion and simply refusing to sell flies in the face of the nearly constant stream of “hot new opportunities” and negative sentiment or press that might otherwise dissuade one from holding a coin for any amount of time.
In stock trading, an attachment to a particular market or company is a normal occurrence. Much like an avid iPhone user would never buy an android phone, an Apple stockholder may be of the mindset that they’ll sooner die than give up even one share of the tech juggernaut. This is a somewhat understandable approach, provided they know why the stock price may go up, be it an increase in sales, a revolutionary new product, a positive earnings report, or increased investor confidence in the leadership. So how is this analogous to cryptocurrency? Where do they differ?
For starters, information about a crypto asset is largely at the discretion of the team developing the technology behind it. Unlike SEC regulated companies, which have to put out various reports quarterly and yearly regarding share structure and company finances, the teams behind cryptocurrencies are often under no obligation to provide any information whatsoever to its holders, save for the outrage of the community if they don’t deliver, and potential government intervention if fraud is suspected.
Indeed, it’s all too common for a dev team to go completely silent after an ICO, becoming a veritable black box of information regarding a project or even what is being done with the money they’ve raised. The other side of this metaphorical coin, however, is that dev teams are at liberty to release quite a bit of information that they may not otherwise be able to disclose if they had raised funds through traditional methods.
This fountain of information can cause a trader to disregard price thresholds that would otherwise trigger an exit, as it may renew the excitement or hope of even higher highs in the future. For example, if a coin is experiencing substantial losses, but the developer tweets that a network test was successful or a beta will be released soon, an investor may be inclined to hold on to the coin a bit longer to reap the benefits when this success translates to a price boom.
This abundance of information and personal interaction with coin holders via social media platforms tends to yield a more personal relationship between holder and development team. This can create a sentiment more closely resembling that of an avid fan than that of a company shareholder. One of the more obvious examples is Vitalik Buterin, creator of Ethereum, who has become an icon of the cryptocurrency space. The creator of the second largest cryptocurrency by market cap is an active social
media user who often comments on the state of the market, as well as the technology behind it, and is a generally outspoken and active part of the crypto community.
Many people hold Ethereum simply because they believe in Buterin’s ability to drive improvement and widespread implementation of the technology. This can become a double edged sword in the case of some cryptocurrencies, however. On one hand, it is vital to know who is developing the technology, what their ability and experience levels are, and how they’ve performed on past projects. On the other, it is inadvisable to maintain a death grip on a coin solely because you are a fan of someone associated with the project. Coins have jumped in value in the past simply because a familiar face posed for a photo with the developers behind the coin. Basing one’s long term investments on the people responsible for developing the tech is of course a necessity, but waiting for someone’s star power to catapult you to wealth is ill advised.
Another aspect of long term investing is looking for important milestones. Does the team have a roadmap? How specific or vague are the goals? Can achievement of these goals be quantified? Have any of them already been completed? Clear definition of milestones and adherence to the timeline is critical for a team to build confidence in their technology. When reading a whitepaper for example, look for the roadmap. If the roadmap shows accomplishments that they’ve already had to date that are significant to the success of their tech, it is a good indicator that the team can deliver on promises and are devoted to the project. If they have not clearly laid out their plan to develop their tech, or if the details and dates are vague, it can be an indication that they may not really know how or when they will be successful.
Traders often use these milestones as a basis for entry or exit. If a major deadline is
approaching, one may be more inclined to hold on to their coins until at least that date to see if the launch will be well received and if that has an impact on the price. This can be risky, as failure to deliver by the specified date can result in heavy losses. In stocks, an occurrence that could send the price either up or down depending on the outcome is known as a binary event. Examples of this include an earnings report or product launch. Consider the capability of the team and the significance of specific dates and plan your exit (or lack thereof) accordingly.
Much like initially purchasing a coin, social media personalities have an effect on whether or not traders hold on to a coin. If you closely follow someone’s daily videos or posts, you’re likely swayed to some degree by their outlook. A prime example of this is Chaincoin. Chaincoin experienced astronomical growth in July of 2017, before and during which Youtube and Twitter personalities heavily endorsed the coin, touting its long term value due to masternodes (a topic saved for another day). Traders flocked to
this coin and many enjoyed the enormous price increase. At the peak of its rise, many novice traders looked to crypto celebrities for guidance on whether to take profits, or hold on for a further meteoric rise like that of Ethereum.
Some of these personalities encouraged investors to “hodl”, as the good times were just getting started, and many did. Just shortly after Chaincoin’s trip to the stars began, it came crashing back to Earth, obliterating those who held or bought near the top in the process. These investors were of course responsible for their own actions, but they were swayed by people whom they trusted for guidance. Whether or not this was a malicious effort by those involved is up for debate, but their impact on holders of Chaincoin is undeniable.
This is not to say that members of the crypto social media community are spiteful or selfish, quite the contrary. These people rely on their credibility to maintain their followings, and any damage to their reputation could prove catastrophic. That being said, it is extremely important to be knowledgeable about the project you are investing in, and have a clear idea of what constitutes a reasonable target for taking profit or cutting losses. Prominent cryptocurrency analysts and personalities should be used as a means for identifying potentially profitable investments, but should not be looked to for deciding whether or not an entry or exit is appropriate.
This brings us to the next element of long term investment, the overall market sentiment. New investors likely have not experienced a long term uptrend or downtrend of an entire market. There is a strong correlation between Bitcoin performance and altcoin price direction. When Bitcoin enters a prolonged downtrend, altcoins typically take heavy losses, sometimes even more so. If a coin is consistently dropping in value, yet the overall market cap is increasing or remaining relatively stable, it could be indicative of damaging news being released about the coin, lack of investor interest (which will correlate with decreased volume), fear or uncertainty about the underlying basis for the coin (such as ERC20 coins dropping in value along with ETH), or merely market manipulation.
It can be difficult to determine for sure whether the market is entering or exiting a cycle, but it is important to maintain a dispassionate attitude toward your decision making when a coin enters a prolonged period of growth or decay. This is where one must stick to the plan. If you truly believe in the long term value of a coin based on factual evidence regarding the underlying technology, you may deem it acceptable to endure a prolonged decline in price, provided it is related to the overall market direction and not a result of fundamental problems with the coin itself. Many coins will return to their previous highs and even beyond after a bear market ends, but it’s up to the investor to determine whether they want to cash out and hedge their losses, or hold on and wait for the market direction to change.
Explosive growth of coins is an exhilarating and rewarding part of investing in cryptocurrencies, and it’s tough to beat the rush of buying a coin right before the moon mission. But as with any rocket launch, you accept the risk of burning up in the atmosphere in the process. Determining the exact moment that you’ve reached the peak of your ascent is extremely difficult, so there is value in running for the escape pods when you feel you’ve reached your limits.
A long term investment is like a long term relationship; the amount of time you’ve been invested should have no bearing on whether or not you should cut ties, but rather the future performance and how it might impact you. There’s always another ride to catch, and another moon to visit.