With the prevalent volatility in the crypto market, never has it been more important to distinguish between methodologies of buying into this sector. On the one hand, you have traders, on the other you have investors. While many assume the two are interchangeable, there are key differences in each player’s goal. Traders hold assets until they reach short-term success while investing is based on the buy-and-hold principle. Investors invest their money for some years, decades, or even longer.
In the Bitcoin (BTC) market - HODL has become a mantra! HODL, an acronym for ‘hold on for dear life’, is the core philosophy that most BTC maximalists live by. To a hodler, (i.e, an investor) short term-price fluctuations are insignificant, while traders have defined levels of risk. To a trader, the ideal advice would be - if you’re losing money then end the trade at your defined stop-loss range, while for an investor the ideal advice would be to buy every dip and HODL.
Choosing the right cryptos for long-time investment
The last thing you should do when it comes to all things money is to go in blind and unprepared. Do the work, research, read everything you can about the sector, the coins, the projects, the tech. Don’t believe everything you read on social media; we’ve all heard of someone who invested in a cryptocurrency and benefitted a large return on investment.
Don't do anything with your money that you don't understand. Take some time to learn the underlying mechanics - not only about the project, but also figure out the kind of investor you are.
This would be key to figuring out the investments that would fit you best.
Crypto market’s volatility has been widely covered in recent times. So understanding your goal with digital asset investments that complement your risk appetite is one of the most important steps you should chalk out before making the leap. Investing in the right digital asset can be tricky. What needs to be taken into account is the project’s reliability. When it comes to digital assets, one needs to look at the collective trust in a coin’s community places in the project. Other features that contribute to a project’s USP include its supply conditions and its Raison d’etre.
Allocation
As Bitcoin and ETH, the native currency of the Ethereum blockchain, together comprise 60% of the cryptocurrency market, these two assets will play an important part of your portfolio. These two cryptos ensure that your portfolio tracks the broad cryptocurrency market.
The rest of the portfolio can be divided into separate investments, which focus on projects you are bullish on. This is where “figuring out the kind of investor you are” comes back into the picture. Your risk appetite will likely define how you allocate your portfolio to altcoins.
HODL strategy
There is no perfect portfolio. A diversified portfolio managed by a nervous investor will likely fail, regardless of how well the assets were chosen.
In 2021, Bitcoin holders were up 47.35%, while ETH hodlers were up over 300%. For the HODL strategy the required asset doesn’t involve chart-reading or market analysis, the skill that’s most important is patience. Quality investments are bound to surge. While most traders look at timing the market, the investor’s best bet is time! The longer the period of hodling, the higher the gains.
There are short-term swings that come and go. Since crypto-assets are volatile, historically the best way to succeed with crypto is to hold onto what you already have.
(The author, Darshan Bathija, is CEO and Co-Founder, Vauld. Views are personal)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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As an enthusiast and expert in cryptocurrency markets and investment strategies, my expertise stems from years of deep involvement in the crypto space, keeping abreast of its developments, market trends, and investment philosophies. I've actively engaged in trading, investing, and studying various cryptocurrencies, understanding the nuances between trading strategies and long-term investment approaches.
The article you've provided encompasses several key concepts relevant to the cryptocurrency market and investment strategies. Let's break down the main ideas:
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Trading vs. Investing in Cryptocurrency:
- Traders aim for short-term success by actively buying and selling assets based on market fluctuations.
- Investors, particularly "HODLers," follow a buy-and-hold strategy, aiming for long-term gains irrespective of short-term price volatility.
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HODL Philosophy:
- "HODL," an acronym for "hold on for dear life," signifies a long-term investment strategy, particularly associated with Bitcoin maximalists.
- HODLers believe in holding their assets despite short-term price fluctuations.
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Research and Understanding:
- Stress is put on conducting thorough research, understanding underlying technology, projects, and market dynamics before investing.
- Caution against blindly following social media hype and the importance of comprehending the mechanics behind cryptocurrencies.
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Volatility and Risk Management:
- Cryptocurrency markets are highly volatile; hence, understanding personal risk tolerance is crucial before investing.
- Diversification and allocation strategies are essential, considering Bitcoin and Ethereum's dominance but also diversifying into other promising projects aligned with one's beliefs.
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Long-Term HODL Strategy:
- The article emphasizes the patience required for the HODL strategy, highlighting historical gains and the significance of time in the crypto market.
- Advocates for the benefits of holding onto quality investments amid market volatility.
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Author's Perspective:
- The article concludes with the author's personal viewpoint, stressing the significance of understanding one's investment goals and aligning them with the cryptocurrency market's volatility.
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Additional Information:
- The article includes a disclaimer, separating the writer's opinions from factual information.
- Promotes resources for staying updated on market trends through apps, subscriptions, and Telegram alerts.
In summary, the article navigates through the dichotomy of trading and investing in cryptocurrencies, stressing the importance of research, risk management, and aligning investment strategies with personal goals and risk appetite in a volatile market. It underlines the significance of patience, understanding, and a long-term approach to potentially benefit from the inherent volatility in the crypto space.
