Wednesday, October 4, 2017

Why Buy & Hold Isn't Always Best Strategy For Bitcoin / Cryptocurrencies

Bitcoin holders reinforce the concept of not attempting to time the market and hence buy and hold (hold), a concept from traditional finance. There is tons of academic research to support this. 

In this video, we discuss buy & hold with stocks and contrast with cryptocurrencies. A commonly referred to statistic with stocks is the fact that 80% of active managers underperform the relevant index. Active funds generally have at least 3 times the asset turnover of a passive fund, which means in general here, buy & hold wins. 

There is more specific reasons why buy & hold is widely coveted as well. The Efficient Market Hypothesis is one such defense. Another defense is the transaction costs associated with active trading. Yet another is the short-term capital gains tax. How about behavioral finance and the emotional impact of trying to play and time the market? Indeed, there is a ton of support for buy & hold. 

Yet in this video, I discuss why cryptocurrencies may not be the best for this strategy. For one, they are not cash producing assets which means future value is based entirely on adoption - a much lower certainty than cash flow generation from a blue chip stock. In addition, the volatility in cryptocurrencies as a result of the demographics and experience of overall investors suggests to me that this market is substantially less efficient. 

As a result, understanding the mood of the market and attempting to time it is a much more plausible task than it is with equities.

P.S: For many people, in my opinion, holding is the better choice due to emotions alone.

  • Blogger Comments
  • Facebook Comments

0 facebook:

Post a Comment

Item Reviewed: Why Buy & Hold Isn't Always Best Strategy For Bitcoin / Cryptocurrencies Rating: 5 Reviewed By: BUXONE