Buy-and-hold strategies are trending again considering cryptocurrencies are leading performers. However, a cost-benefit analysis of this approach is necessary, given that multiple times during the past few years investors had been caught on the wrong foot, buying crypto before a bear market started to unfold. We already know how to resist FOMO, so today the main topic will be on the pros and cons of buy-and-hold, especially when crypto valuations are elevated.
# Taking advantage of directional bias
If there is no topping signal showing up, buying at high levels means positioning in the dominant market direction. We can’t predict the magnitude of a trend and many times, markets will overshoot, leaving plenty of profit potential even for those who are buying late. In the longer run, trading or investing in the dominant market direction will be the best approach, with the condition to adjust when reversals start to unfold.
# Vulnerability in the face of large corrections
Although buying when markets go up is good from a positioning standpoint, one of the main downsides come in case corrections start to form. If we think that volatility in the crypto market is still high and corrective moves can be sharp, it will imply HODL’ers will need to see their investment into negative until the correction will be over. Timing will play a critical role and will be dependent on multiple factors.
# Long-term vs. short-term goals
Ultimately, it all comes down to whether you can long-term or short-term goals. If you believe that over years, the cryptocurrency you own will be more valuable, all the bearish moves will only be setbacks towards the final destination. For those looking for profits right after buying, this approach could be difficult to implement. Volatility is the most important variable when dealing with crypto and it will influence your decision-making process, even without noticing it.
# Pump-and-Dump schemes
In case you already have more than a few months of experience in dealing with cryptocurrencies, pump-and-dump schemes shouldn’t be a new topic for you. These market patterns occurred multiple times and caught many naïve buyers on the wrong foot. We don’t know yet if the current buying frenzy is the first half of a pump-and-dump, but if that will be the case, buyers late at the party will pay a heavy price. A sharper corrective move will eventually occur and whether buyers rejoin impulsively on the lows will determine how far valuations could weaken.
