Trade-offs, Opportunity Cost, and Saying “Fork it” and HODLing
Bitcoin has struggled to stay in the $14k range after hitting a high of $20k. Logic might say sell and wait, but those who sell could miss a number of forks.
I’m not sure the average investor really understands the trade-off between holding through December – January despite the bear market (but being privy to the forks) vs. waiting for clearer market conditions to re-enter a position (but missing the forks and risking realizing capital gains) vs. doing a mix of these.
Each move has different pros and cons, and no one move is the clear winner (and even if one is, your personal skills and goals are a factor here). However, an investor should be aware of the reasons to hold.
Many Bitcoin investors knew that there was a good chance of correction after the epic run from $5k to $20k, a little TA or even some basic logic would have clued anyone in that the most optimistic scenario wasn’t’ t necessarily going to play out.
It did not take high level skills to see that breaking $20k on the first or second try wasn’t a likely scenario, and it did not take high level skills to look at Bitcoin’s history and think “well, failure to break $20k here at the end of the year could mean we are in for a 50% correction.”
However, investors trying to protect themselves by staying out of Bitcoin until the waters are clear could be doing themselves a disservice.
There are over 10 potential Bitcoin forks occurring between December and January (some already occurred, some are still planned). UPDATE: Their ended up being over 20 potential Bitcoin forks in this period.
Some of these forks might be real, some might be fake, but if a handful are real, and if they preform like Bitcoin Gold and Bitcoin Cash, then investors staying out of Bitcoin could be leaving some pretty absurd amounts of future money on the table.
Let’s do a quick and rough example to illustrate:
I’m conservative and think only about BTC price: I had 4 BTC. I got out at $20k (somehow, I’m just that good), I’m staying out until things are clear. It is fine if the result is that I realize capital gains for the year. I’ll re-enter sometime after January when the trends are clearer. I want to avoid a worst case, a sub $10k dip. For me this is all about capital preservation first, and growing my BTC stack second. I thus have $60k waiting in fiat (I’ll owe profits on the capital gains, but the rest is mine to keep, I’m not going to gamble).
I’m going to hold through everything and roll the dice: I have 4 BTC long. I rode the wave up to $20k, I rode it back down to $10k. I’ll keep Holding On for Dear Life. I’ll qualify for every fork by default (as I’m in control of my private keys / on a platform that supports forks). If I see low prices, I’ll add to my position (AKA, I’ll buy the dip). If BTC goes above $20k, which I am betting it will, I’ll have $60k+ (and lots of forked coins). In the meantime I could see my on-paper value fluctuate as low as $20k – $50k (been through this many times before, it is why I still have 4 BTC today). For me, going into fiat and risking realizing some gains or missing a fork or a BTC run is the gamble here! If I mistime the market, I could end up with less than 4 BTC, and that isn’t what I want, I believe BTC is going to $100k eventually.
I’m going to do a mix of the above, I’ve been studying TA just for such an event, I spend my days trading: I had 4 BTC. I rode the wave up to $20k, I’m not a super genius, but I know my stuff… thus, I got out between $20k – $16k gradually after BTC tested $20k the second time. I bought back in between $14k – $10k (at projected support levels). I sold again at $16k. I’m adding to my position as we speak in the $13k – $14k range. I have a little bit aside incase it breaks $12k, $10k, $9k, etc. I now have about 1/2 BTC and 1/2 fiat. This long bear market means I’ll have to realize a few capital gains, but the end result is I still have more on paper-value in the here and now than if I just sold or held! However, one wrong move and I’ll likely be in a position more like the two cases above (if not worse). I was careful to know every block number of every fork, I re-entered before each snapshot (an exited just as quick). Thus, I not only protected my capital and grew my BTC stack, I also will get some forked coins! This took a lot of work, I had to buy higher than I wanted a few times to get in for the forks, but I’m in a good position. I made sure to avoid being in fiat too long, so I haven’t realized the same level of capital gains as if I had just sold my Bitcoin. I don’t have the same amount of forked coins as the holders, but I mostly got the best of all worlds.
Clearly doing a mix and not messing it up presents us with what most would consider the best possible outcome.
In a perfect world where you have Jedi-like skills, you sell high, and buy low on the dips. You grow your BTC stack, you preserve and grow your capital, and you are in for every fork with as much BTC as you can muster (then you are out after the fork just as quick).
However, to accomplish this you need a lot of skills, ample time by your computer to trade and research, and a little luck. Normal humans aren’t going to pull off our third case.
Thus, most people will have to choose between holding and selling.
Those who hold will see some bad days on paper, but they will be in for every fork.
Those who sell high can always buy low. Even if they don’t though, they will protect their capital. They will miss the forks, but they will protect their capital, can’t knock that.
Meanwhile, one can do some other mixes (where they aim to take gains with half their investable funds and to hold the other; nothing wrong with that).
What one might not want to do though is “cut their losses at this point.” If you are cutting losses here at $14k, you are missing out on the forks and the potential future gains. Sure, if it goes down to $8k and you buy more, or at least lose less sleep than the holders, and this could end up working out well.
However, if you start cutting losses, the forks are real, and Bitcoin goes back up… then you have realized losses, lost gains, and missed out on forks. This creates an odd fourth choice that unlike our choices above… has a pretty dismal outcome.
There is no clear right move. However, if you want to keep it simple stupid, you either need to sell high or HODL. With so many good bets on the table, buying high and selling low is something that should not be done on a whim.
NOTE: As time moves on, and if no more forks are announced (which given history seems rather unlikely), the logic presented on this page becomes less-and-less valid as being in Bitcoin won’t have the extra benefit of netting you forked coins.
"Bitcoin is Struggling; But Those Who Sell Risk Missing the Forks" contains information about the following Cryptocurrencies: