Risks of Hoarding Cryptocurrency as an investor

Fredrick Awino
09.08.2022
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Cryptocurrency investing and trading have become top talking points in the current century.  Currently, so many people promote them as a good way for making fortunes. Anybody looking out to venture into cryptocurrency must already have an idea that timing selling and buying of the currencies is the key to making a kill.

WARNING: Investing in crypto, or other markets, can be of a high risk for your savings. Do not invest money you cannot afford to lose, because there is a risk for losing all of your money when investing in crypto, stocks, CFDs or other investments options. For example 77% of retail CFD accounts lose money.

Since cryptocurrencies are naturally highly volatile, investors and traders speculate trends, buy low and sell high thus making a margin. In situations where there is anticipation of a boom in cryptocurrency demand, traders may hoard their currencies to create artificial scarcity and reap more. 

Considering all advantages cryptocurrencies have over fiat money and other asset classes, it is difficult to claim that using or investing in them is not worthwhile. Investors who desire quick and secure transactions find considerable value in the functionality that many cryptocurrencies offer. As time goes on, it will become easier to use with less technological barriers. The advantages of incorporating cryptocurrency or cryptocurrency stocks into your portfolio start to mount when you include in the benefits of diversification.

The Concept of cryptocurrency holdling

Since 2013, the phrase “HODL” has become famous among blockchain investors. In an event that the price of cryptocurrency falls, many adopt the concept of hoarding (holding). Generally, this tactic refers to buying the cryptos and holding onto your tokens eventually. It is a similar method used in stock exchange, and involves buying stocks and keeping shares for several years without exchanging them. As such, you are more likely to benefit from Hodling if you feel you do not have the capacity to navigate the volatility associated.

Despite the fact that hodling is theoretically a less unsafe investment strategy than trading, investors must still consider a number of risks involved with it. In the following sections, I will share with you some risks of hodling cryptocurrency that you should know as an investor. Let us get started!

Is Hoarding Safe?

As an investor, it is important for you to know that the risks of hodling strategy are increased by numerous factors. Although cryptocurrency investment generally draws in many wealthy investors, the idea behind hoarding is still relatively young and quite unstable. When compared to methods leveraging frequent swings and other traditional investments, cryptocurrencies are riskier.

The lack of a central authority to oversee their operations and future uncertainties makes it even a more risky investment.  Consequently, holding for a long time could put you at an immeasurable risk of losing your funds.

Risks of Hoarding (Hodling) your cryptocurrencies

As much as an investor deciding to hoard cryptocurrency ownings may harbour the expectations to reap big, the reverse may also happen. You understand that no one individual is ever in control of cryptocurrency prices and they are also very sensitive to dynamics in the global space.

It makes a lot of sense to particularly understand the benefits that cryptocurrency hodling. With this information in mind, any new investor can be able to consciously assess the possible benefits of holding against the risks therein.

It could be less profitable compared to active trading

Majority of investors buy crypto coins such as Bitcoin, Ethereum, Ripple, Litecoin and others and wait for their values to rise again. Thereafter, they sell them at a profit. It is however crucial to note that you may have the most profitable outcomes should you choose to engage in active trading. In fact, rather than holding over time, it is possible to get higher results by investing in digital assets and keeping an eye on the charts on a daily or weekly basis. Additionally, the holding strategy will prevent you from taking advantage of the crypto market’s momentary price movements.

There is possibility of losing your funds

You may have endured a state of sharp difficulties in the value of cryptocurrency if you decide to hoard for a long time. In fact, you should have far greater risk tolerances than those who invest in traditional financial products. To avoid losing your funds, it is advisable to have enough cash to avoid forced sales and to cover unforeseen volatility demands.

For this reason, maintaining regular control over your wallet is extremely important if you are using a hoarding approach. Try to ascertain that everything is functioning, as it should by making small transactions, and keep your funds secured with the appropriate cryptocurrency private keys.

By doing so, you are likely to avoid the majority of the risks associated with this strategy. You should try out some of the best crypto wallets available in the markets such as Binance, and E-Toro.

You might have to wait longer to get profit

Holding could be a solid strategy for your long-term investment plans. However, it might not be appropriate if you are looking for quick gains in the cryptocurrency ecosystem. You should be aware that the duration required to achieve the desired profit for an investor constitute a major drawback of HODL. Additionally, the holding strategy will prevent you from taking advantage of the crypto market’s transitory price fluctuations.

Never be surprised if hoarding strategy takes several years to generate profit into your portfolio. The risks become even worse if you did not purchase an average bitcoin.  You are likely to wait for an extended period locking your capital and encountering many fluctuations. So, if you decide to embrace this strategy, just make sure that you have enough capital capacity that will enable you to stay away from selling your coins at lower prices.

Final Take Away

In this article, I have explained key benefits and drawbacks of the hodling technique for cryptocurrencies in general. Undoubtedly, it can work well for many investors, but it may not be the best technique for all users. The success within the cryptocurrency system relies on the objectives you have set for your investments and the period in which you want to see a return on your investment.

Multiple risks accrue from  cryptocurrency holding. An investor has to really think twice before holding as a means of chasing higher prices. Without a doubt, an investor should open the mind and  learn more about crypto hoarding. Undoubtedly, this article is a wonderful place to start learning about the functionality of the cryptocurrency, and the entire concept of holding.

 

Author Fredrick Awino