Why Refusal to Cash out Profits in Crypto Might not be Certifiably Insane
Just HODL baby
Is the prevailing message peddled by enthusiasts in the Crypo community and is the mantra which has marked the ascent of the nascent technology to the dizzying heights we bear witness to now.
And it has served them well
Instead of inviting the scurvy of day traders and speculators, the creators cultivated a community of supporters, evanagelists and adopters who persisted through volatility for years. Rapid rises gave way to sickening descents with the spirit of HODL called upon regularly to reinforce a community of dreamed.
Without an unwithering belief in the system, and one another, the rise in price could never have been achieved. I use the word achieved instead of occurred because it was only with the collective action of a large number of individuals that it could have happened. HODL is the thing which enabled the growth and it is what will sustain its ascent — with a failure to adhere to the moto leading to sharp decreases through sell offs and a lack of support.
Price rises can be be understood from a basic economic concept
Supply and Demand
If more people want to buy than want to sell the price will rise. If nobody is willing to sell the price will continue to rise until someone caes in. If nobody does growth, on paper, is limitless. This practice is called market making and is controlled by intermediaries. HODL inspires the growth in costs by following both of these principles.
Nobody wants to sell and because the cost has grown so high so quickly there is tremendous interest in the market. Interest breeds a willingness to get involved.
The problem is that less 1,000 people own 40% of the bitcoin market
This is what has led to the massive price volatitlity we have seen. Because there are a limited number of bitcoin, like shares, when the largest holders make moves the prices shifts rapidly.
Signalling is everything in stock but it is even more critical in Crypto
HODL is more remarkable when you consider this
Any rational person would question their profits from Crypto. To mindlessly continue to hold in the face of minimal technical differentiation should worry the most hardened of investors — if you’re not scared of leaving your money in Crypto you’re not paying attention.
If you double your money in a month when nothing changes that should make you question your position. Some people have 100 times more than they did last year.
The same may be true of investing in traditional stocks but they provide far more stable footing through which a decision can be made. Analysable data, historical performance and projections all provide a level of certainty and understanding that there is nothing for Crypto. It’s growth is unprecedented
You can’t go broke taking a profit, you aren’t financially secure until you cash out. Paper wealth is dangerous if you have no financial certainty atop it.
If you’ve become rich thought Crypto it would seem sensible to diversify to insulate yourself against volatility.
But if you have 1,000X your original investment how does it feel when your investment loses 20% of it’s value overnight? to continue to hold in the face of those crippling stresses is remarkable.
That is what is remarkable about HODL
People continuing to hold in the face of all the above pressures
All this begs one simple question
Is Crypto Simply an Intellectual Construct?
Is it a ponzi scheme or is it a means of expanding the capital available to the masses through decentralisation of who and what controls money and a redistribution of wealth.
If you believe the former the current prices must be nauseating and fill you with glee in equal measure. You will see those claiming to have amassed millions on little more than an idea on the back of a fag packet and feel like the house of cards is on the brink of tumbling down where you can say I told you so. If your version of events become reality you can feel safe in the knowledge that those people who HODL’ed ended up losing it all.
But what if you are wrong?
What if Crypto is the financial stimulus needed to birth a new age of economics?
What if like debt Crypto enables the creation of new wealth. It might only exist on paper, but is that any different to any other form of capital that isn’t physically created? If we believe it exists it does.
How is Crypto any different to Quantitative easing?
Where the government printed money only to immediately get rid of it — effectively devaluing our homes, our savings and everything else we own.
Crypto has been unprecedented in the immediacy of its growth. It has added Billions of $ to the overall GDP of the world already
If it is viewed as a mechanism for increasing overall wealth in the world it can be understood as a new form of capital instead of a reinterpretation of existing currency in a new form.
It’s still early in the day but there is hope.
Or we could simply be creating a new 1%t by encouraging the hype
Personally I believe it is the latter
Humanity, like no other species in history, has the ability to believe stories in order to grow collectively as a people. Whether that is religion, politics, or patriotism, our ability to rally around ideology is the defining feature which has enabled our ascent to become the apex species on the planet.
Crypto will rise or fall based on the perception of the people, and the reality the majority believes. What is true is not something which is typically decided rationally. Wars based on the alleged murmurings of deities in the ears of individuals attests to this.
HODL is not insane if it enables a revolution — it already has
But it is problematic if it leads to a meteoric collapse
My intrigue then is simple
What is the smallest number of HODLers required to achieve a $B valuation? Like a mexican wave around a stadium, my guess is that it can be calculated and exploited.