What is the “hodling”? It is a way of investing that consists of buying and holding digital currencies no matter what happens in the market. In a nutshell, buy and wait without complaining or complaining. The term originated from a user misspelling who meant “holding company” (hold) and ended up writing hodling” (hodlear). Since then, it has become a mantra for many crypto investors who believe that this is how they will get rich. It could be said that it is a cult of passivity. Buy, wait, do nothing. And, sooner or later, you will be a crypto tycoon.
The strategy is nothing new or original. In fact, is a very old and well-known investment strategy, which started with John Bogle and his Vanguard index fund. I mean, John Bogle popularized it. In this sense, it is said that it began with him. Bogle argued that it was best to invest in a fund that replicated the behavior of the market and do nothing else. This saved commissions, taxes and headaches.
In the world of cryptocurrencies, thePassive management is often glorified. Apparently, for them this business is like the Hotel California. You can go in, but you can’t get out. I know from experience that saying you’re going to sell because the price has already peaked can be interpreted as a kind of betrayal of the cause. In other words, here, it seems, we should all be idiosyncratic investors… that is, money should not matter much to us. The important thing is to promote the monetary insurrection to establish the libertarian utopia… So, active management is viewed with disdain for being seen as pure speculation. Personally, I do not share that sentiment. In my opinion, there is nothing wrong with investing for money. What is the problem with speculating?
Is he hodling the best way to invest in cryptocurrencies? That depends on each. Some people (I) prefer a more active management, looking for opportunities, diversifying and taking advantage of market movements. Some people think that he hodling it is a form of laziness, ignorance or fanaticism. And there are those who believe that hodling it is a form of faith, patience or wisdom. Probably, the reality is a mixture of everything. And a lot will depend on the investor.
Do you like cryptocurrencies? Are you one of those who buy and keep your digital currencies hoping that one day they will skyrocket in value? Frankly, in particular, I think the hodling actually it has nothing to do with the passive management that Bogle advocated.
Bogle was an advocate of investing in a fund that tracked market behavior, like the S&P 500, and doing nothing else. This saved commissions, taxes and headaches. His philosophy was simple: the market is efficient and no one can beat it in the long run. Therefore, it was best to diversify and minimize costs.
But in the world of cryptocurrencies, things are not that simple. The market is very volatile, immature and unpredictable. There is no clear index that represents the behavior of the market. And the most important: there is no guarantee that all digital currencies will increase in value over time. In fact, most of them may disappear or lose relevance.
At the idiosyncratic level, the hodling it is based on a false sense of certainty created by those who believe with dogmatic faith in the inevitability of their monetary utopia. This attitude of -“the future is ours”- yes or yes is very similar to the supposed historical “inevitability” of the communists justified in the Marxist dialectic. John Bogle was undoubtedly confident in the continued and future growth of the United States as a whole. In this sense, he was a hopeless optimist.
But can we be sure that the future of cryptocurrencies is already written and guaranteed? Whenever I hear people talking about the future with such certainty, I am reminded of dinosaurs. One morning, one can wake up with many plans and many expectations. And suddenly, bam! The end comes and we didn’t expect it.
Of course, the danger of relying too much on the effectiveness of the hodling is the risk of ending up being a bag holder. That is, hold on and hold on… until in the end we are left with a broken sack in our hands. What is a bagholder? A bagholder is an investor who holds a position in an asset that has lost a lot of value for longer than it should, hoping that one day it will recover. The problem with being a bagholder is that you lose the opportunity to invest in other, more profitable assets and take unnecessary risk. In addition, you can fall into the confirmation bias, which consists of looking for only the information that supports our belief that the asset will rise again, ignoring the contrary evidence.
To avoid being a bagholder, that poor investor who is left with a sack of nothing instead of a treasure, you have to follow some basic tips. First, You have to set a stop loss for each investment and respect it. If the price falls more than we can bear, we must drop the ballast and look for another boat.
Second, you have to diversify your portfolioDon’t put all your eggs in one basket. Thus, if one breaks, we will have others to make an omelette. Third, you have to be well informed, not be fooled by fads or empty promises. Room, you have to control your emotions not hold on to an investment out of fear, greed or pride. You have to be rational and objective, not sentimental. And fifth, you have to review the portfolio from time to time, see how our investments are going and adapt to the market. It’s not about being glued to the screen all day, but it’s not about forgetting about our money either.
To conclude the article, I invite you to reflect on the differences between active management and passive management. Don’t be too seduced by all the hype hodling receives, that buy-and-forget strategy that seems so easy and profitable. Think more carefully and weigh the pros and cons of each option. There is no perfect strategy, it all depends on your profile, your objectives and your risk tolerance. Active management can give you more benefits, but also more headaches. Passive management can give you more peace of mind, but also more missed opportunities. Here are some words for reflection. In other words, with this article, I leave you some pearls of wisdom for the mind.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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