Table of Contents:
When I go around crypto groups on social media, I keep seeing the same comments when it comes to holding Bitcoin. Investors are asking if they should sell or wait for a dip before jumping in.
Many times the answers are very similar, “you don’t take a loss if you don’t sell”, “if you sell now you will regret it next month”, “HODL! ” “You will never see Bitcoin under “whatever price” again!“
Very few are suggesting to sell and rebuy lower. To the new Bitcoin investor, this is an obvious choice. Lets buy it as soon as possible and never touch it again!
While this might work if you are ready to wait for years before making a profit. There are some very easy strategies to follow in order to protect your investment and to generate way more profit than the buy and hold mentality (HODL).
In this post, I will show you what you need to know before becoming an hodler and I will compare the buy and hold returns vs a very simple strategy.
Lets start with what is coming your way if you buy and hold.
The downside of holding Bitcoin
I’ll start by showing you what might be coming to you if you decide to simply hold Bitcoin. I have nothing against doing so, If you believe in it and you only invest what you are prepared to lose, you could do just fine. But you need to know that it is not a very smooth road ahead.
Bitcoin Bear market of 2014
Below is a chart of the Bitcoin Bear market that started in 2014. On November 30, 2014, Bitcoin was worth 1163$. From there, Bitcoin drop about 86% to reach a bottom of 216$ on January 13, 2015. Bitcoin finally went back to its previous all-time high and broke it on the 18th of April 2017. That’s 1238 days or 3.4 years!
So lets say you had 1000$ worth of BTC when it all started, you would have to sit and look at equity going from 1000$ to around 140$. Now it is easy to say it’s worth it as we know what happened next. But when you are living that drop everyday, watching the chart go down non-stop, it is a different story. But you are strong! So 3.4 years later, you are back with your 1000$ worth of Bitcoin 😉
Bitcoin Bear market of 2018
This one is the bear market that changed everything to me. The ICO mania of 2017, crazy pump left and right. We were going to be rich! Went from 4000$ to over 20K within a few months. Moon and lambo everywhere! What could go wrong… right
On December 17, 2017, BTC reached 19,666$. I still remember the euphoria at the time. But then, it started dipping. Everybody saying It’s just a dip!, Buy the dip!, Whales are shaking up the weak hand!. Then it dipped more, and more, creating lower highs and lower lows. Then, I started wondering, where is BTC going!? That must be the bottom, we are already down more than 50%, it can’t really go lower, can it?
Yes, it can, and it did. On the 15th of December 2018, almost a full year after it all started falling, Bitcoin finally reached a bottom of 3122$. An 84.12% drop! I had less than what I started with. On the 16th of December 2020 almost exactly 3 years after the dream started to collapse, Bitcoin finally made it back to its all-time high and broke it.
A better way to deal with Bitcoin
During the 2018 bear market, I decided to learn to trade and would never go through that kind of market without knowing what I am doing. I went through a bunch of trading books and trading lessons on youtube. 100s of hours of learning.
I finally got my strategy going, I became a Trend Follower. Trend following is as simple as its name, simply follow the trend!
There are many ways to determine a Trend for BTC. But here I will only show you how the most basic indicator can do compare to buy and hold. It’s not the strategy that I am using now as I greatly improved it since I started. But to make my point, I will use this one because I believe that even an 8 years old child would be able to do it.
An easy strategy to trade Bitcoin
So basically, we will use 2 moving averages to determine where the price is currently going. The first moving average is looking at the recent average price of BTC and the second is looking at the average price of a longer period.
When the recent average price cross over the longer average price, we can conclude that we are now trending up and should buy Bitcoin. If the inverse happens and the recent average price cross under the longer average, it means we are going down in price so we should sell our BTC or Short it.
This strategy doesn’t work all the time, in fact, it works maybe 30-40% of the time. But when it does work, you grab some pretty good profit. And those profits will compound and make you a lot of money trading Bitcoin.
Here’s what it look like on a chart:
When the green line (Fast moving average) crosses over the yellow line (Slow moving average) we buy, and vice versa.
As you can see, it is pretty basic. But the results are completely insane compared to what you would have done if you had just hold on to your Bitcoin.
The blue area is the equity growth if you would have used the strategy, the tiny white line at the bottom is thee ROI if you would have just hold BTC without touching it.
The starting equity for the test was 1000$, at the end of the test 56,468,423$. Over 56 million.
Using the strategy, the maximum drawdown would have been around -42%. It is pretty high, but it is only half of the -86% that you would have had with buy and hold.
Conclusion
Holding Bitcoin passively as an investment can be a good way to go if you really believe in it and if you are patient enough, but still, there is no guarantee and you should only invest an amount that you are comfortable with.
Trading Bitcoin even with a very basic strategy is by far superior in term of ROI and equity drawdowns which makes it a better option overall.
Now the choice is yours!
You can use the strategy for free, it will alert you via email every time you need to buy or sell. It will take you about 10 minutes to set it up. If you are interested, check out A simple strategy that beat buy and hold.
Let me know what you think and if you have any questions in the comment below.
Italiano 
English 
Français du Canada 
Español 
Русский 
Deutsch 
简体中文 
Nederlands
Hi,
I enjoyed reading through your analysis.
Fantastic stuff.
However, you what happens if the HODLer DCAs every dip and does not sell?
So rather than buying the dips and selling high, he keeps buying the dips and stacking up.
That in my humble opinion seems to be a balanced scenario since both are buying but one is taking profits.
I’d love to see that outcome.
Well, if you buy every dip and never sell, at one point you wont have any funds left to buy.
In a bear market, dips are very frequent.
Just wondering what exactly you mean.