DO YOU hodl Bitcoin in your portfolio? Yes, hodl. No, it’s not a typo. It’s an acronym that has become an accepted verb in the crypto investor’s lexicon. It stands for “hold on for dear life”.
Hodling Bitcoin is like being on a roller-coaster ride without a safety harness. The cryptocurrency has surged by 57% in US dollars since the beginning of the year. But its rise to what are now record levels (it was trading at about $67 000 at the time of writing) was far from steady and predictable. Over the course of 2022, it dropped by 65%.
Where will it go from here? Do you sell now and turn a decent profit, or do you continue hodling in the hope of making more?
That is the short-term investor’s eternal dilemma: do I hold or do I sell? The dilemma is similar, whether the price of the asset (crypto or otherwise) is rising or falling; it’s the overriding emotion that changes. When the asset is rising, the emotion is greed; when the asset is falling, it’s fear.
I was amused by a recent LinkedIn post by a financial planner who bemoaned the fact that a round of golf had cost him 53 million British pounds (well over a billion rand). In 2011, a friend who was an IT specialist had suggested he invest 1000 pounds in a new-fangled virtual currency called Bitcoin, which was selling for about one pound apiece. He decided against it and spent the money on a golfing weekend instead .
But if he had bought Bitcoin when it was selling for a pound, is it not likely that he would have sold it a long time ago? Or would he still be hodling in the hope of making more?
That is the million-dollar question. At what point does the limbic system in your brain, which controls base emotions, override your frontal cortex and your rational adherence to the discipline of delayed gratification? When you’ve made double your money? Ten times? A hundred times?
I suggest that most people would be perfectly happy to have doubled their money and would have sold out at that stage.
This is supported by some interesting statistics. The State of Crypto in Africa Report for the first quarter 2024 by crypto exchange Luno looks at the average holding period for crypto investments. In South Africa, the average period an investor holds crypto is 178 days, or just under six months. In other places it’s shorter: in Europe it’s 121 days; in Malaysia 109 days; and in Nigeria 95 days.
With those figures in mind, let’s delve a little deeper into the history of the Bitcoin price since 2016.
At the beginning of 2016, Bitcoin was selling for about $450. A year later it had roughly doubled to about $970. If you were the average investor and sold within six months of buying, you didn’t make more than 40% during 2016.
The following year, 2017, Bitcoin took off. It ended the year at about $18 800, or about 20 times its value at the beginning of the year. But it was already past its first peak of $19 650, which it reached on December 15, 2017.
The year 2018 was disastrous for Bitcoin – a six-month investor would have lost money at any stage during the year. It closed the year at roughly $3 700, having plummeted a whopping 80%.
Bitcoin started rising again in 2019, reaching about $11 800 by the middle of the year, but the momentum could not be sustained and it fell in the second half, down to about $7 400. A six-month investor would have made money in the first half, but not in the second.
The year of Covid, 2020, saw Bitcoin taking off once again, but it was only in the second half. At mid-year it was trading at around $9 000, but by year-end it had soared to $32 100, returning 260% in six months.
The following year, 2021, was probably Bitcoin’s most volatile year in its short history. Its price soared to around $60 000 in April, then plunged to $34 000 by the middle of the year. The cryptocurrency soared again, reaching a new record price of $64 400 in mid-November. But then it was basically downhill all the way to the end of 2022, from whence it embarked on its current climb, slowly at first, accelerating this year.
So by my reckoning, there are only a handful of periods during which short-term investors made good money: the second half of 2017, the first half of 2019, the second half of 2020, and from the beginning of 2023 to the present.
Which brings me to the conclusion that most Bitcoin investors over the history of the cryptocurrency have not done terribly well. I’d love to learn how many investors have been in it for the long haul and have made their fortunes, but I don’t think it’s very many. Our emotions betray us too easily.
* Hesse is the former editor of Personal Finance.
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