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Bagholding Disease: Symptoms, Treatment & Prevention

Do any of these symptoms sound familiar?

  • Holding a coin up 80%, then back down 90%
  • Dismissing criticism as “FUD”
  • Buying a token for “governance” power 
  • “Our community is (insert token) ‘s biggest asset.”
  • “I just want to buy a coin, hold and cash out later. Everything else is too complicated.”

If you recognize any of these symptoms, you or a loved one may have bagholding disease.

The most challenging part of any investment is actually selling. After spending days or weeks researching an asset and finally getting confident enough to risk your hard-earned money, it’s natural that a connection to the investment starts to develop. You want the asset to do well so you make money, but also so you can feel justified in your reasoning and research skills.

Stick around long enough, and you’ll experience times in the markets that are simply amazing. Massive green candles everywhere you look. Dips that get bought up immediately. New projects launching daily and doing multiples in hours. Pictures of rocks selling for six figures. Under these conditions, it’s hard not to develop bagholding disease. 

Once you’re up on your investment, euphoria sets in. The more money you make, the more emotionally connected you become to the asset. Now, you start doing “moon math” to see how much you can make if prices continue to increase. 

I’m certainly guilty of imagining what I can get if “xyz” token goes to a certain price. Next thing you know, the only thing you’ve bought is a round trip with your bags back to the bottom of the chart.

Why Is Bagholding So Easy?

When it comes to investing, buying crypto, or whatever you want to call it – we all need something to believe in. Whether it’s something that the protocol promises to do, an incoming catalyst, something you read, or a tip from a friend, – we all need a justification before we speculate on a token.

Information cascade starts when we make decisions based on the actions and opinions of others. If you’re on crypto Twitter, then this looks like copy-trading an influencer who recently hit a couple of trades in a row. Or maybe it’s listening to a talking head on the news. Or maybe it’s an influential “community member” of a token you’re looking at.

When suffering from information cascade, our minds assume that these people know more than they do, so why make a decision when you can just copy them? Unfortunately, with this mindset, whether you win or lose, you have no idea why, making it impossible to repeat successful behaviours and eliminate harmful ones. 

Becoming a better investor isn’t about finding ways to relieve yourself from the burden of decision-making. You can’t use technical indicators or people’s opinions to separate yourself from the consequences of taking a trade. You’ll start seeing better results when you use people’s opinions and technical indicators as pieces of a puzzle that contribute to you making better decisions that lead to wins.

Emotions In Bagholding

Losing money is painful, and there are few things our brains do better than finding ways to avoid pain

Consider the whirlwind of anxiety, fear, optimism, and hope surrounding a person’s investment. People tap into these emotions every time they check the price – hoping for the best and fearing for the worst. These emotions leave people paralyzed and unable to part with their bags even when presented with the information they should.

The mental struggle starts when we look for ways to avoid losses/pain (blindly following) instead of improving our ability to make rational decisions based on the information available. This financial hesitation is similar to the concept of regret aversion.

Give yourself a foundation for your decision-making in crypto. Whether its risk management, technical analysis, or understanding how protocols work, having a base of knowledge will shield you from the paralyzing effect of emotions.

How To Get Over Bagholding Disease

Check Your Biases

If everyone thinks something is going to happen, it probably isn’t. The problem with many crypto communities is they quickly turn into an echo chamber that paints a perfect future for their favourite projects. Many communities (full of bagholders) don’t take criticism well, and feedback is often dismissed as “hating.” 

Learning a basic level of technical analysis is an effective way to check your biases. All technical analysis does is act as a tool you can use to evaluate the current state of the market to make more informed decisions. With basic technical analysis skills, you can identify uptrends and downtrends, giving you more data to include in your decision-making process. There’s no need to become an expert, but learning how to read charts is an effective way to prevent yourself from sinking money into clearly overbought markets.

Don’t Leave Crypto (You Can’t Leave Anyway)

Regardless of how boring crypto gets, you’re doing yourself a disservice by leaving the market. Sticking around and keeping up with people who are actually building new protocols will prepare you for the next influx of people and money that comes into the space. Keeping up with the markets is how you identify potential catalysts and triggers for the next run. Not to mention, slow periods in markets are a great time to meet with knowledgeable people in the space. Using protocols during low activity periods in the markets is an easy way to get listed for upcoming airdrops.

“Do You Want To Be Right Or Make Money?”

“The first principle is that you must not fool yourself — and you are the easiest person to fool”

– Richard Feynman, theoretical physicist

One of the most severe symptoms of bagholding disease is the visceral desire people get to say anything to justify their investments. This is why when you ask most people to explain more about a crypto project, you just hear them regurgitate marketing buzzwords. You can call it cynical, but the most important technology is “number go up”. Will you hold a token just because the tech is better even it isn’t performing as well as other tokens? Make sure you fully understand what you’re buying and the value it actually brings to the world.

Find ways to take gradual profits 

Don’t put pressure on yourself to time the top. Slowly scaling out of your position will help you preserve your profits. Again, learning technical analysis will help you identify periods in the market where it makes sense to start scaling out. Slowly scaling out is a great way to overcome the fear of missing out since you’ll always have some exposure.

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