Investing and hodling crypto comes with an array of opportunities as it has proven to be a quick avenue for investors seeking fortunes. More so, the flexibility and fast-growing pace of the cryptocurrency market have made it a global phenomenon as new investors are flocking in every day.
Today, the crypto market is worth more than $2 trillion according to Coinmarketcap, a growth that is expected to increase further due to the exodus of traditional investors to the industry. Consequently, one of the regular strategies investors often deploy in the crypto market to make substantial gains is hodling emerging assets.
Hodl is a market terminology in the crypto space that implies holding assets for the long term to make explosive gains. This strategy helps investors with the advantage of netting huge gains as the token keeps growing.
Despite being a proven tactic, hodling can incur huge losses for new traders. In this article, we will discuss the dangers associated with holding a crypto asset for long by a newbie.
Why Crypto Hodling Isn’t Ideal For New Investors
Volatility
It’s no longer a hidden truth that cryptocurrencies are highly volatile as their prices can change in no time. The volatility of virtual assets can wipe off tons of investment in no time.
Also, on the flip side, the market can go on a significant price rally, making investors rich overnight. However, enduring such a dramatic twist can be daunting for new investors.
Hence, it is advisable for crypto newbies to focus on nailing short time gains, instead of hodling on to their assets.
Lack of Practical Long-Term Focus
Despite having its upsides, hodling assets for beginners can be deterred by the lack of achievable long-term focus by most crypto projects. Most cryptocurrencies often focus on having utility, meanwhile, a significant portion of these use cases are organic and not practically achievable.
By that, some of these projects often struggle to stick to their long-term plan, ultimately leading to their demise. In such a situation, investors are mostly at the receiving end as their investment in the project often gets wiped out.
Therefore, it can bring uncountable losses if new investors are hodling crypto projects facing the aforementioned issue. Investors with good experience in the crypto market will likely manage to mitigate such risk as a result of their familiarity with the trading environment.
Psychological Issues
Psychological Factors like the fear of missing out (FOMO) and their inexperience can compel newbies to make impulsive decisions while trading. Due to their naivety, new investors may unnecessarily hodl a token, pushing them to record massive losses.
While struggling to catch up with the technical demands of the market, new investors might start trading with emotion. In such a situation, the investor might buy at peaks while selling at low prices. Consequently, such investors are highly exposed to high risks which could affect their long-term investment gain.
Lack of Market Maturity
Despite commanding huge funds, the crypto market is still in a relatively young stage and an evolving stage. Hence due to how the crypto market is still in a development stage, it could be dangerous for new investors to hodl some assets.
While the market is still developing, numerous projects and innovations will keep surfacing with the majority of them eventually failing. Meanwhile, new investors as a result of the lack of experience may not be able to tell which project will survive at the end of the day.
Similarly, a full-grown market like the traditional finance space has data to evaluate the actual value of an asset. The evaluation mostly focuses on earnings, revenue, and other financial metrics and they help investors to form their investment strategy.
Unlike its counterpart, cryptocurrencies lack key data that makes it difficult for traders to actually estimate the value of these assets.
Security
Keeping crypto for a long time requires high-security responsibility. Traders must do well to always keep their pin, password, and secret phrase safe to ensure that their assets are intact.
For newbies, it may be difficult for them to keep their cryptocurrencies safe from unwarranted access. Also, due to their new presence in the crypto space, inexperienced investors are highly vulnerable to cyber hacks, rug pulls, and phishing attacks from bad actors.
Parting Words
Above all, there are numerous opportunities in the crypto space. Risks and complexities attached to interacting with the digital assets landscape are less suitable for new investors who lack the experience, idea, and needed tolerance to effectively mitigate the volatile market.
Lastly, it is advisable for new investors to devote more time to learning the pros and cons of the crypto market before committing their investment.
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