27 October 2020
Understanding The Concept Of Crypto Bag Holder
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Every space has a certain jargon or term either formal or informal that is used to refer to a certain person, a concept, or an aspect. Likewise, in the cryptocurrency space, we have the “Bag Holder”. The term bag refers to holding of crypto coins and tokens in the portfolio by the investor. Bag holder is used to referring to an investor that retains his or her assets and investments in spite of the continuous decrease in the value or even a situation wherein it may become worthless, hoping with time for a market recovery in future, while knowing the risk involved of losing the value of the asset or investment during persistence of downward trend.
A bag holder is also said to be as someone who HODL (Hold On For Dear Life) than SODL (Sell For Dear Life).
Example Of Crypto Bag Holder
Chandler is an investor who purchases tokens of a technology start-up project. During the ICO- Initial Coin Offering, the preliminary stage consists of growth in the price, while after a period of time leading to a drop due to xyz reasons. Post the analysis and reports, the price of the token results in plunging. However, even after all the downfall, Chandler chooses to continue believing and holding onto the token. So here, we can call Chandler as the Bag Holder.
Also Read, 7 Tips To Manage Your Crypto-Portfolio
Reasons Behind Being A Bag Holder
- Some investors, in general, do not follow the concept and strategies that are required to be a part of the market.
- Bag holders often have a strong belief that their bags might be valuable in the future if not now.
- It could be the lack of time too to analyze or to track the crypto’s coin performance in the market.
- There also consists of a situation wherein the investor is not aware of the underperforming coin or asset in the market.
- Disposition effect could also be one of the variant reasons if not whole. The effect describes an investor who knowingly chooses to hold the bag with less value and hoping for the recovery while selling the bag whose value increases. Hence, disposition effect is human psychological where it states that a person hates when they lose more than enjoying their win, leading to making abrupt decisions.
- Sunk cost fallacy is also one of the reasons that make an investor a bag holder. The concept is about when an investor holds the asset due to the unrecoverable expenses he/she has already made. In this, the investor waits to the least time so that they can gain a decent or the initial investment price.
- Prospect theory is basically when the investor makes decisions on the basis of the perceived or potential gain than the losses.
In order, not to be a part of being a bag holder from an investor, it is important to not only consider the above fallouts mentioned but to also learn, study and analyze the market on its own. One should take into account that what’s lost is lost and should try to measure further preventive steps. The investor can also take the help of the financial expert to gain better insight and advice.
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