In the crypto market, corrections can go deeper and for a newbie investor, it can become scary. If you’re thinking too much about it, let me tell you, it’s the normal fear and greed cycle that is playing out in the market. It may hurt your investment portfolio in the short term, but it’s a healthy development for the proper functioning of the market.
At any given point, either bulls or bears are fighting in the market, trying to take control of the direction of the trend. If bulls fail to push the market higher, bears tighten their grip and pull the market down and vice versa.
We can certainly say that bears have slowly tightened their grip over the crypto market in the last few weeks, resulting in a sharp fall in the value of all crypto assets. Since Nov 11th, 2021, the crypto market has lost close to 50% in total market capitalisation, with Bitcoin and Ethereum leading the charge.
So, if you are thinking of making any changes to your crypto portfolio in the backdrop of the market crash, just hold for a minute. Take a deep breath and think, is it important? Why not continue to HODL, if the fundamentals are intact.
In this blog, we will discuss why you should not lose focus on HODLing.
Why HODLing Matters?
HODLing is the most effective way to create wealth in the crypto market. Let’s expand this statement with a set of examples.
HODL is an acronym for “Hold on for Dear Life” and is widely used in the crypto market indicating a long-term approach in crypto investing.
The buy and hold strategy is a well-proven investment strategy and has shown its resilience over the years. It never fails, given you’ve invested in cryptos with strong fundamentals.
In 2017, soon after bitcoin touched an all-time high level of $19,873, the crypto market crashed and was in a bearish mode for the next two years, with bitcoin price touching a low of $3,183.
But, when the market trend reversed, bitcoin and other cryptos with strong fundamentals were the quickest to bounce back, making new all-time high levels.
A similar trend was witnessed in late 2013 when bitcoin prices went up by over 10 times in less than 2 months, from near $100 to just over $1,100 level.
HODLing- Simple, Yet So Difficult
A few days back, the founder of a leading discount broker in India raised everyone’s eyebrows by sharing one of the harshest facts of the stock market. Only 1% of the active traders make more than fixed deposit returns over a time frame of three years.
On the other hand, long term investors enjoy much greater returns on their investments over time just by doing nothing. And it’s difficult to execute because you need to stay put in the market and keep a check on your emotions, which are constantly affected by the noise in the space.
The only person who has perfected the art of long term investing is Warren Buffet. He made billions of dollars in the market by just doing nothing.
His collective investment of $1.3 billion in Coca Cola stocks, which he made over two years- 1988-89, is now worth over $22 billion. And, since 1995, it has earned him dividends worth over $7 billion. He continues to hold the stock and rarely transacted even during the worst of the market crashes.
Although the crypto market is unregulated, it shows traits similar to the stock market, because they’re both people-driven markets. They are constantly guided by the fear and greed cycles of the market- a distinctive feature of investing psychology.
Don’t Lose Focus- HODL
Market crashes or deep corrections are unnerving, but they are a normal part of the cycles of the market and extremely important for the healthy growth of the market.
The best thing to do during a crash or correction is to stay the course. Don’t deviate from your investment plan. Get a perspective on what’s causing the crash- is it due to a change in the fundamentals of the crypto asset or just a normal market cycle.
If it is a part of a normal market cycle, you need to prepare for an extended period of a bear market, but that doesn’t entail selling your crypto assets.
It should be seen as an opportunity to evaluate your investment strategy and risk profile. It helps to improve your learning curve and get yourself better prepared for future market corrections.
Remember, corrections and crashes don’t last long. It helps to weed out the weak hands from the market and bring fresh new growth capital, which is important for growth.
As wise men in the market say- KEEP INVESTING IN RED, TO ENJOY THE GREEN.
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Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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