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Trading Lesson: Is Bitcoin Ever a Buy-And-Hold?

10/19/2018 1:33 pm EST

Focus: CRYPTOCURRENCY

Avi Gilburt, Esq

Founder, ElliottWaveTrader.net

I know of no asset other than cryptocurrencies where traders of which adopt the lexicon of the broader trading community and then layer on their own slang. The chief word in the crypto trader’s word bank is "HODL," which most interpret to mean "Hold On for Dear Life," writes Avi Gilburt Friday.

The phrase, I’m just HODLing is often expressed as a badge of honor, as if holding on to a losing position due to passionate devotion is a virtue.

Those that just hodl are often thought of as the true investors in crypto, as they believe so much in this nascent asset that it will have to be ripped from their cold, dead hands.

Many of these hodlers come from a Libertarian mindset and see cryptos as free from the command and control of government. Some are technology enthusiasts who believe blockchain will shape the future of the internet. And some see themselves on the front end of a long adoption curve that will rise exponentially, forever.

Regardless of the source of their belief, these people are considered the hardcore investors in this community. Sometimes they are hardcore enough to go down with the ship.

This badge-of-honor mentality presents a problem. You see, cryptos are the most volatile asset on the planet. Seventy- to ninety-percent corrections are regular and normal. So while HODL is a sign of bravery to some, it seems to me the sentiment is akin to wearing a lemming suit and expressing the willingness to run their accounts off a cliff for their beloved cryptocurrencies.

Whether you are trading cryptos or another asset, giving your undying love to an asset is a recipe for disaster.

As we see in the post (warning: heavy profanity) that sparked the acronym HODL, wearing this badge is synonymous with being a bad trader, and saying it proudly. But as we’ve seen over the last six months, someone can only hodl so long. The deeper we go in this correction, the more the hodlers are forced to let go. This is the normal course of markets, as corrections attack even the strongest hands.

From today’s vantage point, the smart ones are not the hodlers, but those who let go of their positions in January, at $19,500, when we called the top in bitcoin (BTC-USD).

Hodlers buy and never sell, at least if this slang holds true. And so this moniker proves to be a crutch, not a strategy. At the end of the day, it really is an excuse to ride a correction all the way down to a 70%+ loss because they do not understand the ebb and flow of markets.

So we urge hodlers to consider how they might stop participating in sentiment rather than using it to their advantage. Most investors that have lasted through many years of market cycles know that one should be buying when everyone is selling and selling when everyone is buying. Our Elliott Wave analysis is the best way to identify those extremes.

Those who have been in the market for decades know that even very bullish markets don’t rise endlessly, but instead correct deeply to reset sentiment. Unfortunately, the average bitcoin investor under age 35 doesn’t have decades of market experience, and is learning the pain of participating in sentiment now.

Now that we are coming close to a bottom of some degree (ideally in the $4,600 to $4,800 range, as we’ve shared in past articles), you can bet there are fewer hodlers standing. One by one, they reach their breaking points and sell right before the next bull cycle. The market will inevitably seek to wring every last coin from their hands. Those who are left might sell in the first sizeable rally, which will be the first wave of our ride northward, and should reach roughly $15,000 if we bottom in our expected bottoming zone.

Once the road is cleared of truly bearish sentiment, we’ll see a turn. While we’ll first see signs through an increase in buying volume, an initial five-wave structure, taking us over $7,450, will be an important indication that trend is trying to change. While there is much more to look for to suggest a likely breakout to all-time highs, this will change our near-term outlook from short to long.

Conclusion

We hope that this 10-month-long correction was a lesson to those new to crypto investing. Instead of being driven by a mantra, we hope you discover a strategic approach. Instead of embracing the volatility of cryptocurrencies with gritted teeth and propped-up courage, embrace the volatility as an opportunity.

Capturing this great opportunity means operating as a contrarian to sentiment: exiting when the market is frothy and waiting for signs of capitulation before reentering. We believe that the end capitulation is right around the corner.

Avi Gilburt is a widely followed Elliott Wave technical analyst and founder of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.

Are you confident in your ability to make money trading crypto? Join us at Crypto Intelligence in Las Vegas on November 14, 2018. Get an exclusive 50% off discount when you use code "TradersEXPO".

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