HODL is dumb. Even if you like bitcoin you could’ve cashed out and repurchased. The entire philosophy can be reduced to: if you think it’s going to go up, buy more, otherwise sell.
1) Taxes. When you sell you will owe taxes (considering you’re selling at a profit). At best you’re probably looking at ~23% + whatever state taxes you’re in. So, you may need to sell right before the asset drops a considerable amount. Hard to time.
2) You can’t predict. It’s easy to look back. But you don’t know at the time. Saying that, there’s pretty well defined practices on selling a bit and holding a bit.
Taxes are on gains, but they are far from irrelevant when comparing buy-and-hold strategies with those involving many transactions. An x% tax effectively reduces net profits by x% every time you sell, meaning that it eats into the compounding rate (at the buy-sell interval), which is fundamentally different from eating into your "simple" profit as it effectively would for buy-and-hold.
To give some concrete numbers, imagine you want to invest $1000 for 10 years with 10% APY with gains taxed at 20%. Buy-and-hold nets you $1000 * 1.1^10 = $2594 pre-tax, and $2594 - (2594-1000)*.2 = $2275 post-tax. Cashing out and immediately buying back in every year nets you the smaller $1000 * 1.08^10 = $2159 post-tax.
What you’re saying isn’t relevant because the HODL philosophy is that you believe bitcoin will moon, therefore you can buy all dips and cash out inevitably when it moons.
No. It means don’t sell in a bear market [1]. From the originator, GameKyuubi:
> You only sell in a bear market if you are a good day trader or an illusioned noob. The people inbetween hold. In a zero-sum game such as this, traders can only take your money if you sell.
It’s not irrelevant at all. You use your capitalization for margin loans and credit. Naturally you’re hedging so it’s not super important but I wouldn’t call it irrelevant in many cases.
And gains are great! But tax consequences should be considered if you plan on reentering the position with the same capital.
> Even if you like bitcoin you could’ve cashed out and repurchased.
The HODL strategy is based on the belief that: 1) Bitcoin has not yet reached its full potential. 2) Short-term price movements are unknowable.
You may disagree with #1 but I'd say you're delusional if you think you can predict Bitcoin price movements.
Of course, this is just my dumbed-down version of the strategy. For a more nuanced and rigorous version, it's better to read the source directly[0]:
> I type d that tyitle twice because I knew it was wrong the first time. Still wrong. w/e. GF's out at a lesbian bar, BTC crashing WHY AM I HOLDING? I'LL TELL YOU WHY. It's because I'm a bad trader and I KNOW I'M A BAD TRADER. Yeah you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks sure no problem bro. Likewise the weak hands are like OH NO IT'S GOING DOWN I'M GONNA SELL he he he and then they're like OH GOD MY ASSHOLE when the SMART traders who KNOW WHAT THE FUCK THEY'RE DOING buy back in but you know what? I'm not part of that group. When the traders buy back in I'm already part of the market capital so GUESS WHO YOU'RE CHEATING day traders NOT ME~! Those taunt threads saying "OHH YOU SHOULD HAVE SOLD" YEAH NO SHIT. NO SHIT I SHOULD HAVE SOLD. I SHOULD HAVE SOLD MOMENTS BEFORE EVERY SELL AND BOUGHT MOMENTS BEFORE EVERY BUY BUT YOU KNOW WHAT NOT EVERYBODY IS AS COOL AS YOU. You only sell in a bear market if you are a good day trader or an illusioned noob. The people inbetween hold. In a zero-sum game such as this, traders can only take your money if you sell.
Again, the point is about taking gains. If you bought bitcoin at 18k and watched it go to 60k and didn’t sell anything and now you’re looking at 18k again you’re a fool. Period.
Basically every time the prices increases by X% sell Y% of your investment and don't touch the remaining part unless it is X% higher than the previous peak at which you sold. This ensures that you're realizing gains on the way up, but still benefit if the price continues to climb. In addition what I like about that strategy is that it takes emotions out of investing: Decide once what your parameters for the strategy are and then just strictly follow it, whatever happens. It's a lot easier to stomach a 90% price decrease if you realized a sufficient amount of gains on the way up.
Under certain conditions HODLing can be an ok strategy. Assuming my investments are diversified enough and Bitcoin is only a small percentage of my overall net worth, why deal with the stress of active investing and trying to time the market?
I can totally understand the mindset of investing some amount today but not wanting to have to care about that investment for the next X years. Especially with the high volatility of crypto currencies.
FWIW there's a lot of scientific research backing the idea that HODLing is the best trading strategy for stocks[0]. It's why women tend to do better than men on the stock market (they trade less)[1]. Given that cryptocurrency is even less predictable than stocks, it'd be surprising if it didn't hold true for cryptocurrency as well.
Your simple theory can also be applied to stocks. Easy! I'm guessing you must be a multimillionaire by now. Strange that nobody else came up with this simple solution: buy low, sell high. Incredible!
And here I am, an idiot investing in index funds and HODLing crypto. What a fool I am!
Edit: Sorry for my dumb question, but is it buy or sell right now? And at what price point to I need to sell or buy in again? Thanks for the advice! I'm going to be a multimillionaire soon.
HODL may be dumb, and yes you can cash out and repurchase, but "cashing out and repurchasing" requires timing the market, which generally doesn't work out.
I could've cashed out and repurchased funds in my IRA over the past few months, but that would've required me to be able to predict the future.
> The entire philosophy can be reduced to: if you think it’s going to go up, buy more, otherwise sell.
