Buy and Hold Strategy

The Buy and Hold Strategy overview, what it means, how it works and how YOU can benefit. So many traders make the mistake (and some pay dearly) of simply gambling on cryptocurrencies. With some basic common sense and a few tips from reputable sources, you can easily build a portfolio and benefit from a cryptocurrency wealth creation mechanism such as bitcoin. How easy is it? It is not easy, but it is not out of reach either. You need to choose a strategy that is right for YOU.

What does buy and hold strategy mean?

Your strategy depends most importantly on the type of coin you are investing in. The term “HODL” (hold on for dear life) refers to this strategy. The idea is that you simply buy bitcoin and only sell it in 5 or 10 years. All through that time buying more in order to bring down the average purchase price.

RELATED ARTICLE: Does the bitcoin price really matter?

Be careful when taking advice from friends and family and be sure to do your own research.

How does it work?

You choose a term or a profit goal. You then decide which one is the trigger. (Time-based or Price based). The theory is that most traders prefer price-based strategies, as time-based orders can be very rewarding but also break the bank at the same time if it goes the wrong way. You can also combine these parameters to create a less risky investment.

Eg. In OCT 2017 Nomsa decides to buy R1000 worth of bitcoin every month for 3 months and immediately after purchasing the bitcoin she places a SELL order to sell the bitcoin she has just bought for DOUBLE the buying price. She decides to SELL ALL the bitcoin after 12 months regardless of the price.

Using this example* we can look at what would have happened to Nomsa’s investment over the last 12 Months. R1000 (Oct) = 0.019 BTC + R1000 (1 Nov) = 0.0095 BTC + R1000 = 0.00665 BTC (1 Dec)

Initial Investment R3000.00 (0.03515 BTC)
Total Returned (hold for 12-month strategy) R3,241.51 {A return of about 9% per annum return}
Total Returned (sell for double)

(Oct 17 & Nov 17 orders would have executed. The Dec 17 order would still be open and we will calculate using OCT 18 closing price.)

R4836.75 {A return of more than 62% per annum}

*we have used the approximate figures from Google Finance to do these calculations

How do YOU Profit from buying and holding?

You control your bitcoin.  This means that you decide when you buy it and when you sell it. There are services that offer margin trading, but this is for professionals and it is a risky form of gambling with an already volatile (at this stage) currency. Your best option is good old “spot” trading. This means that when you buy the asset or token (in our example it is bitcoin) you own it and can move it wherever you want. (In fact, you should move it to a wallet where you control the private keys)

RELATED ARTICLE: How to Store Bitcoins and Keep Them Safe

What are the Risks and Benefits?

You always need to do due diligence on your investment decisions. Choosing the right strategy is very much dependant on your personal circumstances. Be careful when taking advice from friends and family and be sure to do your own research. Everyone has a different financial position, earning power and risk appetite. Make sure you know what your personal parameters are. Do not be blinded by untold riches. If you have R500 a month (which you can afford to lose if everything goes wrong) then this may be a good strategy for you. If you only earn R5000 a month it would be a very risky decision.

Risks Associated with the HODL Strategy

There will be different opinions of risks, but we are all human and are all susceptible to fear and doubt. Holding a coin too long, and then selling in desperation after a flash crash is a familiar occurrence for many. Life circumstances can change, this can force you to close a position early. Do you have a balanced basket of investment and savings to protect you in such an event? If not, then cryptocurrency trading is not the answer.

The Buy and Hold strategy will also have different tax considerations based on your personal situation. Bitcoin, for example, has no market price (this is different from estimations and indicators which are all over the place). There is simply supply and demand. You can therefore only accurately confirm the “price” of a bitcoin (or part thereof) once it has been sold. This is a problem. Under the current regulations and understandings, if you decide to buy and hold for 5 years, you have no guarantees as to any tax liabilities during that period as now specific laws exist.

Benefits to Buying and Holding

You have more control over your exposure of the long-term investment and as a result, can manage your risk better. This means that you are more confident in your strategy the further down the line you get because you are able to measure your success along the way to your goal. With this mindset and some, you can take advantage of dips in the market and create more options to trade by averaging out your buying price. This also means that you are more in tune with the market.

TIP: Set a google alert for market news on a particular coin you are holding, and review your portfolio performance periodiaclly. You can schedule a digest via email of all your trading activity on iCE3X.com. Simply go to your account settings page.

What do you need to do?

If you decide you want to try the buy and hold strategy you should:

  1. Make sure you have verified trading accounts on reputable exchanges such as iCE3X (do not use credit cards or PayPal)
  2. Always store your bitcoin in a secure non-custodial wallet, preferably a hardware wallet – designed for long-term storage
  3. Use google alerts to receive an email whenever there is movement in the particular coin market you are interested in
  4. Have a plan and stick to the plan. If you do not have the means or financial discipline, this strategy is not for you.

If you have a particular strategy that has worked for you, or you have any comments that could add value to this strategy for other readers, please share them in the comments section below.

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Disclaimer Notice:

This article is intended to educate and should in no way be seen as investment advice or an enticement to use the ice3x.com platform. Bitcoin is highly volatile with big profit opportunities but you should also remember that you could lose part or all of your investment whenever you take part in any high risk investment. Bitcoin trading is not a regulated industry in South Africa, which in itself carries additional risks. IF YOU ARE NOT AN ASTUTE BITCOIN TRADER, SEEK INDEPENDENT FINANCIAL ADVICE BEFORE MAKING ANY INVESTMENTS.