Trading vs Holding Bitcoin
There are different investment options depending on the time objective that we have set for ourselves.
There are people who see Bitcoin as savings. They believe that it will win out over any other asset in the coming years, so they average a monthly contribution as if it were a savings plan. These are known as hodlers .
(The term hodler comes from the misspelled English “hold.” The historic typo occurred on December 18, 2013 in a crypto-investor forum that went so viral that it has survived to this day as one of the most established terms in cryptocurrency. crypto slang. It has later come to be used as an acronym for the phrase “Hold on for dear Life” (HODL), meaning something like “Keep it for Life”.)
Hodlers know that the general trend is up (no wonder bitcoin is up 600,000% in the last 10 years), and approach price charts from a yearly perspective (see example below).
Most likely, many of them will not sell for five years. This long-term perspective leads them to ignore the declines (no matter how pronounced they may be), since, for them, they are temporary events and the price always ends up recovering sooner or later to continue its rise.
Sometimes they even increase their exposure by buying more on dips (hence the famous BTD expression “buy the dip”).
To their credit, they don't suffer from the anxiety of daily, weekly, and monthly volatility. In addition, having spent years invested, the profit is practically guaranteed. As for taxes, they will not be paid until they sell, thus greatly limiting the hassle of having to file your crypto tax returns for personal income tax every year.
On the other hand, it is important to point out that hodlers are the ones who are best positioned for an eventual hyperbitcoinization since they have been accumulating bitcoin for a long time and can have large amounts. While other people, if they wait too long, they will not get to have a whole bitcoin in life.
Against him, the high doses of patience and emotional control necessary to withstand drops of up to 85% such as those that have occurred in previous bear markets.
Some of the maxims of the hodlers are:
“Don't wait to buy bitcoin. Buy bitcoin and wait.”
“If you can't take the dips, you don't deserve the gains”
“Bitcoin is not volatile. People's emotions are volatile."
“Unless you can see your cryptos drop 50% without it causing a panic attack, you shouldn't invest in the crypto market”
There are those who see Bitcoin not as savings but as an investment. They are the medium-term hodlers. They know the fundamentals. They study bitcoin cycles and their goal is to sell near the peak and then buy back at the bottom. Its time horizon varies between 6 months and 3 years.
They look at the weekly and daily charts. They try to ride the big climbs as we see in the graph and get out just before the puncture to avoid drops of 83-85%.
In this way they achieve two objectives: 1) ensure profits from time to time and 2) reinvest the profits in obtaining more bitcoin than they had when they started investing to be prepared for a potential hyperbitcoinization.
Unlike pure hodlers who are not impacted by short-term volatility and market fluctuations because they don't sell, mid-term investors or hodlers want to take advantage of these ups and downs to lock in profits. These people will have to declare their crypto earnings every year in the IRPF.
Of course nothing is free in this life. The desire to want to be smarter than the market has its risk. If you guess the peak (or the trough) wrong, you may miss out on a significant amount. Some, when this happens to them, enter the market again near the peak (or the valley), moved by greed. On a large number of occasions they end up underselling due to the nervousness caused by buying near the peak (or the valley). Therefore, over the years, the profits are offset by the losses (and by the taxes paid in previous years). In the end, many of these individuals end up realizing that they have been in the crypto market for years to earn nothing or very little when compared to hodlers .
It goes without saying that as your time horizon decreases, the risks increase. It is certainly difficult to guess the peak of a bull market as it is to guess the trough. There's a good chance you're wrong. In fact, most inexperienced people make mistakes and end up losing money.
A “pro” trader's trick is not to sell everything at the peak to protect yourself from making a wrong decision. It is not good to run out of options in the face of the possibility that the market continues to rise. Therefore, they sell a percentage on the rise (between 20 and 50%) and hold the rest. Even if it goes down a lot. After all, bitcoin has shown to recover the price within a maximum period of 3 years. The same in the valley: the staggered purchase is an interesting option.
Finally, we have the traders.
Traders expect to receive a short-term financial benefit. Your bets are in the range between intraday, up to a few days. The graphs that they usually use are daily, 4 hours, 1 hour or even 15 minutes.
Experienced traders base their technique on the Technical Analysis of the charts. Mastering Technical Analysis is like learning to drive. The first thing is to get your license and after a long time of practice you can say that you have mastered driving. And the more you practice, the better you'll drive. Similarly, trading requires theoretical study of the discipline, practice on demo accounts, and finally mastering the technique by practicing with real money alone over a long period of time. Of course, once you have learned it will be for life. Same as driving. It is more, for all the assets of the market. Not just Bitcoin.
Traders love the volatility of bitcoin as it offers them the opportunity to make a lot of money in a short time by betting on both the upside and the downside.
However, that same volatility is to blame for the vast majority of novice traders, who do not master Technical Analysis and risk management techniques, incurring significant capital losses.
Trading bitcoin (and even more altcoins) is a highly risky activity for non-professionals given the high volatility of the asset. Unfortunately, many inexperienced people attracted to making quick money not only decide to trade bitcoin without having experience in Technical Analysis, but also to leverage their bet in the derivatives markets. Or what is the same: obtain more capital to finance investment operations through debt. Leverage consists of multiplying your bet by two (2x), by five (5x), by ten (10x), by twenty (20x), or by two hundred (200x) through loans with the consequent exponential increase in risk. This leverage effect added to the effect of volatility can be a real time bomb.
There are two types of trading:
spot trading , which consists of buying an asset and selling it in the short term, obtaining a profit as a result of a rise in price,
derivatives trading which involves placing bets that the price of an asset will rise (known as going long) or fall (known as going short). Therefore, derivatives traders are present in both rising and falling markets.
In the first case, the trader owns the asset to later sell it. In the second case, the trader does not own the asset, he bets on the asset in the form of a contract. This is a fundamental difference when we talk about bitcoin since if we want to be our own bank we must necessarily be the holders of the asset. Although traders probably do not care about this difference since they are looking for quick profits and not the intrinsic benefits of bitcoin. Another key difference between spot and derivatives is that with derivatives trading we can leverage ourselves, which as we said is about being able to multiply our bets to make them more aggressive. Consequently, betting small amounts can create large profits. But also great losses.
For example, if the financial leverage offered by the trading platform to operate in a certain market is 200x, to open a position of €20,000, it would be enough to use €100: €100 x 200 = €20,000. In case the asset went up 10%, the trader would earn €10 x 200 = €2,000. That is, having invested €100, the trader would earn €2,000. In the event that the asset fell by 10%, the trader would lose €2,000 even if he had only bet €100.
It is a complex practice and it is recommended to be carried out only by professionals.
Ultimately, investing in bitcoin depends on your time horizon. This will define the type of investor you are: with a speculative tendency or, on the contrary, saving. However, it is true that many hodlers are also mid-term investors and traders. In such a way that they assign 70% of their crypto portfolio to holding bitcoin, 20% to trying to predict peaks and valleys of bitcoin in the medium term and 10% to crypto trading (with or without leverage).
all about bitcoin
Bitcoin is a digital currency that circulates through its own network of computers connected in a decentralized way. Precisely because it is decentralized, it does not require any central or local authority to manage it. Hence the libertarian character of the currency.
all about bitcoin
In a parallelism with the Internet, it is said that the penetration of Bitcoin in society is in a period equivalent to the 90s, when the network of networks began its gradual adoption. The process of adopting a new technology is widely studied. In addition, a series of medium and long-term models developed by macroeconomic investors of various kinds are available.
WHAT YOU JUST READ IS AN EXCERPT FROM MY BOOK "HOW TO INVEST IN BITCOIN AND CREATE A MILLIONAIRE MIND"