Cryptocurrency Pre-Hodling Strategies

Before we discuss how to hodl in more detail, I want to make a distinction between two investment methods: the long-term approach and the short-term approach.

The short-term approach is more popularly known as trading, i.e., buying and selling of financial assets within a relatively short turnaround time like within a few hours, or at most, a couple of weeks.

The long-term approach, also known by the names buy-and-hold and buy-it-forget-it, is an approach where the investment time horizon is you probably guessed it right – long. By long, I mean at least 1 year.

Hodling falls under the long-term, buy-and-hold approach. Hodling has its share of advantages over the short-term approach. One of them is time.

With the short-term approach, you have to be on top of your positions most of the time so you can time your transactions well. This is especially true for financial assets whose prices are very volatile, like cryptocurrencies.

With the long-term approach, the bulk of the work you’ll need to do will be prior to buying your financial assets, i.e., research.

After doing your homework, you buy the financial asset you believe is your best bet and forget about it.

All you’ll need to do is update yourself on the price of your investment once a week or even once a month. Because your investment view is long-term, you won’t be affected by the price fluctuations in between and hence, only need minimal management or monitoring.

Another advantage is cost. In a perfect world, every transaction shouldn’t cost a dime. But our world ain’t perfect so you’ll need to pay transactions fees for every financial investment transaction.

With trading, you’ll trade more often, which means more transactions fees. With a long-term approach, a.k.a. hodling, the number of transactions you’ll have to make are few and far in between, which means less transactions fees.

Now that I’ve gotten the distinction out of the way let’s jump into how to significantly increase your chances of hodling successfully. For better appreciation and understanding, I’ll divide this topic into two main sections: Before and during hodling. We’ll focus on before HODLing in this article.

Ask Yourself Why

Remember what I wrote earlier about how bulk of your hodling work will be in the beginning, i.e., prior to your actually hodling your cryptocurrency investments? Good. Now let’s buckle down to work! The very first thing you’ll need to do is know your reason for hodling.

When you examine the lives of people who have achieved so much in their lives, one common thread that runs through them is awareness of their life purpose. In other words, they know why they’re doing what they’re doing.

And more importantly, I guarantee you that if you examine each of their reasons, you’ll find those reasons to be very meaningful or compelling ones.
Therefore, you’ll need to have a compelling reason for hodling any financial asset, which in this case is cryptocurrencies.

Why is this crucial? Hodling successfully will require self-control and perseverance, especially during times that prices are down, i.e., bear markets. It is during such moments when your emotions can become so strong that they override all logic and make you do things you’ll probably regret later on.

But while anybody’s reason for hodling’s very obvious, i.e., make money, it’s not a very compelling one. In fact, it’s a very generic and shallow one.

I’m talking about a deep, compelling, and personal reason. To better help, you figure this out, ask yourself deeper questions such as why do you want to make money of this investment? Is it so you can have enough money for your child’s college education 15 years from now? Is it so you can retire early? Or is it so you can travel around the world by the time you turn 60 years old? The more personal and bigger your reasons are, the more compelling they can be.

When you’re tempted to switch to a riskier cryptocurrency that’s been increasing in value at a faster rate than the relatively less risky but consistently performing cryptocurrency you’re hodling, knowing that you’re doing this to minimize the risk of your child not being able to go to college can help you exercise self-control and avoid taking excessive risks and gambling away your child’s future.

When you’re tempted to unload your cryptocurrencies simply because they’ve dropped in value even though all indicators may point to a bright future ahead, knowing that you’re doing this so you can retire early can help you resist the temptation knowing that unless you actually sell your cryptocurrencies at a loss, your market loss is just a theoretical one and can still be recovered.

Minimum Rate of Return

When you know how much your investments need to earn at the minimum, it’ll be easier for you to choose your investments wisely. And by wisely, I mean choosing investments that are neither too safe but unprofitable nor potentially very profitable but also excessively risky.

When you know how much return you need to accomplish your hodling goals, you put yourself in a good position to take on investments that will help you accomplish your goals for the least possible risk.

So how do you know you minimum rate of return? First thing you’ll need to know is how much money you need to have by the end of a certain period, e.g., after 5, 10, or 15 years.

Then, determine how much money you can afford to set aside for investing. Finally, determine the rate of return based on your expected future value (the amount you need to have in the future) and present value (your available funds for investing or hodling).

And when you’ve determined that, make it your minimum expected rate of return and choose only those cryptocurrencies whose average annual rate of return is equal to or more than your minimum required.

Risk Appetite

This refers to how much loss you are willing to take in the event your investments turn sour.

Why is this an important consideration? It’s because there’s no such thing as risk-free investments and the higher the expected returns on investments are, the higher the financial risks you must be willing to take.

So there is a possibility that your investments won’t be able to give you the returns you’re after. And the worst thing that can happen is you lose money on your investments, which can be as much as all of it.

By knowing how much you’re able to comfortably lose, you’ll be able to determine whether or not to invest in a specific financial asset such as cryptocurrencies.

And if you decide you want to invest in a specific financial asset despite the risk, knowing your risk appetite or tolerance can help you determine how much money to invest.

When figuring out how much cryptocurrencies to hodl, there are two ways you can estimate your risk appetite. One way is to think about how much money you can comfortably lose.

There are two benefits to this approach. The first is this: your finances won’t be seriously affected if the worst case scenario happens. Investing your entire savings in cryptocurrencies is a foolish idea because if the price goes down by a significant amount, you might not have enough money for your personal needs when something unexpected happens like getting hospitalized or if you accidentally wreck your car.

But if you invest an amount beyond what you really need to live a comfortable life, you can live with worst case investing or hodling scenarios.

The second benefit to this approach is you won’t be pressured when prices of your cryptocurrencies go down or fluctuate wildly.

When that happens, your emotions won’t get the better of you and because you can be more objective when it comes to your cryptocurrency holdings, your chances of successfully riding out temporary investment “storms” are much higher.

The other way you can estimate your risk appetite is by determining an amount of money you strongly believe you won’t need to use within the next 1 or 2 years and beyond.

How’s this a good basis for determining how much to invest in cryptocurrencies or other financial assets? Hodling is a long-term endeavor. As such, you need to be able to keep your investments intact so it can ride out temporary dips in prices if any.

For you to be able to do this, you’ll need to make sure that the money you’re going to invest is an amount that has a high probability of not being needed in the near future.

Read the Damn White Papers

Especially if you plan to invest in an initial coin offering or an ICO, which is the cryptocurrency equivalent of initial public offerings or IPOs of stocks and bonds, you’ll need to read the white papers of the cryptocurrencies you’re interested to hodl.

But what are white papers? Before we get to that, we need to talk about ICOs first. An ICO is a way by which creators of a cryptocurrency raise enough funds to launch a new one.

These fundraising activities are unregulated, considering the autonomous and decentralized nature of cryptocurrencies.

Compared to the usual fundraising activities of mainstream investment banks and other financial institutions, ICOs are way less rigorous and regulated, which makes them easier to do.

ICOs worth their salt will always give out white papers, which is the ICO equivalent of an IPO’s prospectus. A white paper is a document that elaborates on the details of the fundraising activity, i.e., ICO. These details include among others the purpose for the fundraising activity.

As a prospective investor, it’s crucial that you know as much as you can about the ICO you plan to get into so you can have a very solid idea of whether or not it’s legitimate and whether or not it has very good investment potential.

White papers are written by people from a wide range of backgrounds who are knowledgeable about the coin or token to be issued as well as the financing of such like lawyers, PR practitioners, experienced business men, and information technology experts, among others.

White papers are created and distributed to the investing public to give them a clear idea what the ICO is really about and in the process, foster a good level of trust from them. White papers – just like prospectuses – can help establish the legitimacy of an upcoming ICO and thus, is crucial for its success.

And for you, as an investor, the white paper is the primary means by which you can learn all there is to learn about a soon-to-be-issued cryptocurrency.

Through white papers, you can make the most informed decision possible about whether or not to invest in an ICO. So when you see an ICO already being sold without a white paper, that should be a red flag already concerning its legitimacy or if not, the quality of that ICO.

So what are the things a good white paper should contain? These include:
− The ICO’s vision;
− The underlying technology for the token;
− The token or the project’s unique selling proposition (USP), i.e., what current problems or challenges it can effectively address, why being able to effectively address such challenges is important, and the token’s unique characteristics;
− How the token will be distributed among its ICO subscribers as well as among the team behind it;
− Timeline of activities that need to be completed for the ICO;
− Language and focus of the white paper; and
− The people behind the token’s development and their credentials.
Details such as these are crucial for your hodling success because these are the things that can affect the long-term viability of the token in question.

Reading the white papers is very crucial for spotting a potential scam. Of all the details white papers contain, there are three that can give you a good indication of whether or not the ICOs they’re backing up are legit.

These are the vision, the people behind the ICO, and the language and focus of the paper.

The vision part of white papers gives you an idea if the people behind the ICOs believe that they’ll be around for the long haul or for the short term only.

Legit ICOs are in it for the long haul so if their vision is either short-term or is vague as to the timeline, better think twice.

The people behind ICOs should give you a very good idea of the quality of their quality and their chances of being able to successfully accomplish their vision.

Conduct a background check on the people identified in the white papers as being part of the core team, particularly their accomplishments, credentials, and where available, any scandals or issues involving them.

Because they are the people who are responsible for creating and managing the tokens up for sale in ICOs, they should be the single biggest factors to consider when weighing the chances of success for ICOs. Or whether or not they’re legitimate.

Lastly, the way that white papers are written is another indicator of whether or not they’re legit. In particular, pay close attention to the focus and language of the paper.

What’s the paper focusing on? Is it focusing on the benefits with very little or no discussion on risks? If this is the case, then chances are it’s either a very low quality ICO or worse, it may be a scam.

Scams tend to focus on the potential benefits, making them seem almost sure or guaranteed, in order to make you feel so good about them enough to be duped.

Legitimate ICOs disclose relevant investment risks so their prospective investors can make the most informed decision possible.

What about the language? White papers that are written very poorly, i.e., using inappropriate language or terms can be indicative of a scam.

For example, try watching the TV show Designated Survivor and one thing you’ll probably notice is how realistic the show seems, which makes it a legit high quality program.

And one of the reasons why you’ll probably think that way is because they use terminologies that are actually used in the White House or in politics.

In the same manner, legit white papers will use terms and sentences that you just know is consistent with the industry. White papers that appear to be written by amateurs is a red flag.

However, white papers that meet these three criterions isn’t a guarantee of legitimacy and high quality, as it’s possible for scammers to hire professionals to write very good white papers for them.

But what it does is tell you that there’s a very high probability that the ICOs such white papers back up are legitimate and of good quality.

That’s why it’s also important to research information outside of white papers. That way, you can validate the information you’ll obtain from them.

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