When you're in a bear market, you see a lot of people hating on the "Hodl" crowd. They love to point out how holding can just lead to your funds slowly losing their value. The classic "It takes 100% gain to recover from a 50% loss" memes start coming out.
To be fair, the HODL crowd can be annoying at times in their evangelism and baseless faith, but hey, we're guilty of this many times over too.
Today though, we've decided to write this post about the merits of taking profits vs holding, even if it means you risk missing out on future profits. This isn't about trying to time the market per se, more about rolling profits forwards to keep liquid, and realize larger gains in the long-run.
Part of the problem arises when we blindly accept things like "HODL" without really appreciating what it means, and where it fits into the bigger picture.
Now don't misunderstand this.
HODLing has proven over time to be one of the most effective ways to make money in the long run with crypto. Those Bitcoin HODLers from 2010 have made a fortune. HODLing, or Holding, or whatever you want to call it, is the answer to volatility. It's the answer to doubt and fear. It's the answer to FUD.
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If you HODL, you don't panic sell, and as we're always reminded, you only lose when you sell (kind of).
So we like the HODL strategy. It's worked for us pretty well so far, and it's worked for most people. Unless you bought at the all time highs in December, you are most likely sitting on profit even now, and that will have come from holding.
Let's not beat a dead horse anymore here. For most people out there, holding is the best route to riches because you don't have to spend time researching alternative ideas.
You don't have to worry about jumping between coins, accidentally panic selling, FOMO'ing into pump and dumps, and generally making a ton of mistakes that you could avoid if you just held.
But what about if you DO have time to look into other options?
What if you DO want to look into other strategies?
What if you're sick in the stomach from seeing your portfolio's wealth erode over the past three months?
In other words...what if you DIDN'T just hold? Are there other options?
That's what we're going to explore more in this post.
Returning To An Old Question - When Should You Take ICO Profits?
This post was largely inspired by Wanchain finally hitting exchanges a couple of weeks ago, but is actually a topic we discussed back in one of our very first posts in November. In that post, (which you can read here), we were debating the merits of selling some or all of a coin as soon as it hit an exchange and had a price surge.
There are a few different schools of thought on this, or rather, there are a few different ways you can play it:
- Just HODL baby, this coin is going to the moon!
- Sell back your initial investment and let the rest ride (there are a few different price points you can do this, most people like 2-3x).
- Sell 50% at 3x or above and let the rest ride (or slowly exit more and more as the price goes up).
- Sell 80-100% as soon as the coin hits exchanges, regardless of whether it hits 2x or 10x.
When we were first discussing this, we were musing over what the right thing to do was. There probably isn't actually a right or wrong way to play it, especially as every coin is different and behaves differently.
There are many individual factors to consider as well:
Does the coin have a benefit for holding? Is it a protocol layer that will have its own ICOs in the future, and the more coins you have the better? Are you going to get a masternode?
How's your liquidity? How big of an opportunity cost is there to holding? When the coin inevitably dips later, will you regret having your funds tied up?
How much do you believe in the project vs just seeing a good opportunity for capital gain?
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There's also the market to consider. Hitting an exchange during a bull market causes the coin to ride a lot higher, and for a lot longer, than a coin that lists during a bear market.
That's probably the most fundamental factor in determining the short to medium term performance of a coin actually.
So when Wanchain hit the market and reached highs of about 8x vs Ethereum, we had a dilemma.
Wanchain is a project that we believe in long term. We're very bullish on both its potential and its price and we WANt (yeah that's a wanchain pun) to be holders for some time.
But at the same time, we wanted to take some profits. The 6.8 ETH we put into the project back in October was now worth 50 ETH. That's already a huge gain, and we sure could do with some liquidity in this low volume market.
Selling 25 or even 50 ETH worth of WAN and rolling it into other ICOs was appealing, even in a bear market.
And this is where the controversy seems to lay.
We discussed this sale in various community groups, and were met with the following comments:
- You're crazy, Wanchain is going a lot higher than this.
- In this market Wanchain will outperform ICOs.
- You'll need those WANs in the future for ICOs on the platform.
- WanChain is going to hit $50-100 before end of 2018.
And maybe those people were right.
But there's also these comments to consider:
- Most ICOs stay stagnant for some time after the initial surge, so it makes sense to sell now.
- There's an opportunity cost to holding.
And our personal favorite:
- Even if Wanchain goes 100x by year's end, you could beat that by rolling the profits into 4 other ICOs and selling each for 2x.
Wait. What? That sounds kind of interesting.
Let's look deeper into this and do some napkin math.
We'll keep it simple and just use ETH/WAN market.
We invested (speculated) 6.8 ETH into Wanchain back in October 2017 and it listed on exchanges in March 2018.
So let's say WAN does indeed go 100x by end of 2018, which would make it worth about 680 ETH. Selling it for 50 ETH in April would seem pretty dumb. Oopsie.
But let's say you rolled that 50 ETH into ICOs and achieved 2x on each one. How many ICOs would you need to hit 2x with before you had passed that 680 ETH?
ICO 1: 50 ETH -> 100
ICO 2: 100 ETH -> 200
ICO 3: 200 -> 400
ICO 4: 400 -> 800
It would only take four ICOs for you to pass that amount. On average, from investing in an ICO to the token listing on an exchange (which is when you're most likely to hit 2x and take profits) takes about 1 month. This means you could not only earn more, but you could do it in a much shorter time frame too.
So the theory is pretty solid, and we like it.
But it's not as simple as the napkin wants us to believe.
What if one of those ICOs tanks and you end up losing your initial?
What if it never hits 2x?
What if you can't find a project that you can invest 400 ETH in, and has enough liquidity to let you cash out 800 ETH on the exchange?
This is actually quite likely.
But you could break it down into more projects. Maybe you invest 50 ETH each into more ICOs instead. There are still pretty good chances of hitting an average of 2x there even with more projects. Some of them will 3x or even 4x upon listing (We exited DeepBrainChain within 48 hours for 5x and ZRX for 10x).
By the way, in the two week period since Wanchain listed, here's how its price has performed:
See what we mean? We could have taken profits right at the start, and be no worse off now.
Of course, this strategy can't see into the future. WanChain might 1000x in the next month and if we'd sold we'd be here thinking "Ah crap, now we look silly."
Or it could do nothing for six months and we'd be thinking "Ah crap, should have sold, silly."
However, this strategy CAN look into the past.
Back when we wrote that first post, we talked about how we had sold 80% of our Chainlink shortly after it listed, turning 5 ETH into about 20 ETH, plus whatever was left in Chainlink.
We weren't sure at the time if that would have been the right move or not. So why don't we see how it actually panned out for us, six months later?
15600 LINK tokens received for 5 ETH (We were in a group buy to receive a pre-sale bonus).
This is a price of 0.0032051 per token.
The current price of LINK is 0.00073749 per token. This means if we'd held all this time, our 5 ETH would now be worth 11.5 ETH.
So, holding for 8 months would have yielded us around 2.3x. Which isn't a great return (ok, it isn't great for crypto. We'd take that in any other investment).
However, it's not fair to judge this decision based on a snapshot and a bear market. Let's look at what the maximum return we could have got would be.
At its all-time-high, Link's price was 0.0022. This would have given us 34 ETH, or 30 ETH if we'd sold 14,000 like we actually did.
So while we didn't quite sell at the top, this actually supports our argument for selling during the initial listing, because that 0.0022 price was achieved back in October, right when Link first listed:
Also, just because the price touched 0.0022, doesn't mean there was enough volume at that price for us to get out anyway.
So, we got out of Link for about 20 ETH, and could have got out for about 30, while holding would have seen the value slowly move sideways and eventually downwards. Link will bounce back in the future though, once some more partnerships, developments, or other random pieces of news are released. Maybe then it will pass ATH, and we'll be thinking "Oooh, we could have sold later for 100 ETH".
But here's the thing, we didn't just sit on that ETH once we'd exited Link, we actually rolled most of it into other projects. Some panned out quite well, some didn't.
One of them was WanChain. So there's that.
Here's how we spent our Link funds:
3.3 ETH -> NeoGas (Now worth: 3.3 ish)
6.8 ETH -> WanChain (Now worth: 50 ETH)
2.5 ETH -> BlockV (Sold 80% for 7.5 ETH, remaining 20% is worth 1 eth)
2 ETH -> BCPT (Now worth: 2.02 ETH)
5 ETH -> AIR Token (Now worth: 1.35 ETH)
Remaining LINK value: 1.18 ETH
So even with some losses (Dammit AirToken), we've come out very far ahead.
Let's summarize quickly:
1.) If we had held LINK, we would have turned 5 ETH into 11.5 ETH as of today, and the maximum we could have got was around 34 ETH.
2.) By selling it and rolling it into others, we've turned that 5 ETH into 66.35 ETH as of today, and we could have got more if we'd sold some of the others closer to their ATH.
Note: We had zero available ETH at the time of selling our LINK, so we would not have been able to realize the Wanchain gains without selling LINK. That's another huge reason for selling, to remain liquid.
The same is true with ICON, where we turned 2.5 ETH into about 50 ETH, then saw it slowly fall back down, only to return to about 31 ETH as of today. Of course, ICON and WAN both have ICOs on their platforms, so there is the ability to grow the tokens to value, but if you can turn 5 ETH into 66 instead of 11, you've got some room to buy more tokens later anyway.
Now, we've just cherry picked you one example to support our theory. What if we'd rolled all of that 20 ETH into AirToken? The numbers wouldn't look so great, but would still have been a viable move.
We also have had to invest a lot more time into finding ICOs and monitoring them in order to achieve these results. If you really are strapped for time, then maybe holding really IS the best strategy.
Or maybe you should join our upcoming newsletter, where we'll be sharing these strategies in real time, and helping you all get into the same projects we're getting into as well.
Either way, this post has been a great thought experiment, and has made us reconsider some of our ICO strategies for the future.
It also makes us wonder whether it really is so bad to cut loose a losing token as well. After all, if you put 5 ETH into something, and it dips to 2.5, then takes 6 months to return to break even..could you have just sold it at 2.5 and turned that into 10 ETH in the same period? People seem to be too afraid to sell for a loss, even if it could lead to future gain. This is a debate for another post though.
Finally, while we don't agree with people who hate on hodlers and condescend them for watching their profits get eaten away, we do think that sometimes, holding isn't the best option if you want to maximize your profits.
What do you think? Let us know your thoughts below.
P.S We know that selling and rolling profits into more coins leads to more taxes, but the upside should still far outweigh that fact.