How the Hodlers Fail the Crypto-Economy

December 2017 was a missed opportunity for hodlers as well as the crypto-market in general.

Hodlers could act responsibly in December 2017 and be rewarded for their actions. Instead they’ve chosen to be greedy. They’ve lost the opportunity to profit and to contribute to the stability of the crypto-market.

By hodlers, I don’t mean the average investor who made a humble investment into Bitcoin and held on to it through the ups and downs of the market. By hodlers, I mean the crypto-geeks who built a significant holding back in the day when Bitcoin was less than $10. By hodlers, I also mean the early investors who invested a significant amount in Bitcoin when Bitcoin was less than $1000.

Lack of Market Making

Hodlers had a responsibility in December 2017. They had the responsibility of market making. They had the responsibility of selling some of their holdings when the markets went out of control in 2017. If they did that in a controlled fashion, we wouldn’t have the crazy ups and downs. We would still have a healthy bull market now. We would be attracting more and more investors to the crypto-space. Mainstream adoption wouldn’t be a joke that it is right now.

Confusing on paper profits with real profits was an illusion.

Instead, hodlers chose to hold on to their portfolios and they became the victims of their greed. Holding on to their portfolio so tightly was an illusion for hodlers. Their illusion was confusing on paper profits with real profits. The markets have punished them for not taking some of their profits, which they could put in use when the markets withdrew later in December 2017 and January 2018.

In a way, Charlie Lee, the creator of the LiteCoin, did what was responsible and sold all of his LiteCoin holdings at the height of the market in December 2017. He did what was responsible for the crypto-market in general and for his portfolio in particular.

It was a no-brainer to sell a portion of one’s portfolio above $10K in December 2017, even a few percentage points of one’s holdings.

I’m 100% aware that one person cannot influence the market by themselves. However, when the markets go crazy and you have sufficient amount of funds, it’s a no-brainer to put some of those funds, for example 10% of your holdings, into the market. It was a no-brainer to sell a portion of one’s portfolio above $10K in December 2017, even a few percentage points of one’s holdings.

Responsibility to Act Rationally

As crypto-investors, we have a responsibility. That responsibility is to act rationally in this market. That is to only invest what we can afford to lose. That is to accept the fact that Bitcoin prices can crash for 80% or more any time. That is to accept that our Bitcoin accounts can be hacked any time. Moreover, our responsibility is to act as market makers, even if we can’t influence the market just by ourselves.

By market making, I mean deploying up to 10% of our holdings when the price swings exceed rational expectations. It is really not that difficult to gauge whether the markets act irrationally or not.

Did gold, silver, oil, or another commodity made a 2000% price move in 2017? No, they didn’t. Did the whole financial system collapse? No, it didn’t. Did we experience hyper-inflation? No, we didn’t. Then why did the price of Bitcoin increase almost 2000% in 2017? It did not have a reason. Serious Bitcoin investors had the responsibility to act against that move, instead of getting excited about profits on paper.

My 2018 Crypto Game Plan

In order to fulfill my responsibility to the market and to my own portfolio, I’ll keep investing in Bitcoin in 2018, because I expect the price to withdraw throughout 2018. At the moment, 3% of my savings are in Bitcoin. My plan is to increase this percentage to 5% throughout 2018 in 12 installments over 12 months. I have already invested three installments in January 2018 at $11K, $10K, and $9.2K

I plan to add passive orders under market prices and wait for them to be fulfilled. If they aren’t, I plan to buy from the market price in the last week of each month.

In the unlikely event of 2018 being a copy of 2017 and the Bitcoin price exceeding $100K without a rational reason such as hyperinflation, I will start to sell up to 10% of my Bitcoin investments. That is my responsibility as an investor. Taking profits in irrational upswings is also sound portfolio management.

Please don’t interpret the paragraph above that I expect Bitcoin to go above $100K in 2018. As I explained in my previous Bitcoin related post, BTC can end up anywhere between $1K and $100K in 2018. Moreover, if it ends up at $1K, it can stay there for several years. Hence, maximum 5% portfolio allocation from my side.

Summary

Depending on their long term investment objectives, I believe whales, hodlers, and even regular investors have the responsibility to act against irrational market movements. Unfortunately, 2017 is a missed opportunity for many hodlers and the crypto-markets in general.

I hope, we, the crypto-investors, learn our lessons and use up to 10% of our portfolios to contribute to the stability of the crypto-markets, if prices start to act irrationally. This is not only our responsibility to the crypto-economy at large. This is also our responsibility to our own portfolio.

If we don’t act on our responsibility, the crypto-economy will remain as the Wild West of finance. We won’t see people and businesses using it as a means of exchange, not even store of value. It will be a casino, attracting gamblers that are only after quick bucks. And the mainstream adoption will remain as a dream.

Disclaimer

This post is for information purposes only and not intended to be investment advice.

Burak Bilgin
Software developer with a Ph.D. and 15 years of experience. I write daily on personal development and life lessons. Sign up to my email newsletter to receive a weekly overview of my latest content on personal development and life lessons.

2 thoughts on “How the Hodlers Fail the Crypto-Economy

  1. Scott Root

    Hodlers are the backbone of bitcoin. The very fact that they hodl ensures that bitcoin will never go to zero even when fear begins to take the crypto markets.

    1. Burak Bilgin Post author

      Thank you for the comment, Scott. Hodlers play an important role in the crypto-economy. As I mentioned in this post, they could and have to act more responsibly during the wild up and downswings in the markets.

      I’m not a big time whale, but still I do whatever I can to contribute to the stability of the markets as explained in the post.

      Unfortunately, the fact that someone holds an asset won’t prevent that asset from going to zero, especially an asset like Bitcoin where new tokens are created regularly and sold to the market. More about that in my post the Dark Side of Bitcoin.

      What prevents an asset from going to zero is the people who buy that asset in the market. As soon as the demand for an asset ceases, its price plunges to zero, no matter how many people hold it.

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