Why Long-Term Holders Outperform Short-Term Speculators

There are two main ways to profit in the crypto market. Long-term holders buy digital assets and keep them for months or years while short-term speculators trade frequently, hoping to catch quick price changes. Both strategies can bring good profits, but data shows long-term holders are more profitable over time.

Long-term Investment vs Short-term Speculation in Crypto

Most people starting their crypto investment portfolios look for high-risk, high-return coins and low-risk, low-return coins. Such a balanced portfolio reduces the risk of negative volatility while allowing the best return potential.

This approach forms the foundation of the hodl strategy. Long-term holders ignore short-term price swings and treat them as “noise” that has little impact on their investment goals. They focus on the bigger picture instead of daily market movements.

Short-term speculators can make quick profits during good market conditions. However, those with “diamond hands” who stick to their long-term plan often achieve better overall returns. This happens because of several key advantages that long-term investing provides over frequent trading.

The Power of Compounding

When it comes to investments, long-term compounding typically beats daytrading or scalping. A 10% annual growth would snowball the initial capital as time passes and beat inconsistent short-term returns where negative values wipe out profits. However, compounding is not just a tool; it is a mindset that investors build, and it is one reason why long-term holders are more profitable than short-term speculators.

However, it is essential to start investing early to enjoy the power of compounding interest. A great example is Bitcoin (BTC). Those who bought BTC between 2009 and 2013 and held on until 2020, 2023, and to date are among the most profitable because they got in on the asset earlier than others.

Lower Risks, More Profits

Investments carry some level of risk, no matter the assurance they come with. Investors try to balance their risk appetite with their profit targets, so they only go with what they are comfortable losing. Yet, minimizing risks is one of the most underrated skills that investors must have. One way to achieve this is to hold assets and avoid short-term trading or speculation.

Speculators always try to predict markets, which could prove stressful and often inaccurate due to unpredictable fluctuations. There’s also the factor of time, which speculators consider in the light of short-term volatility. However, holders don’t have such issues; they simply focus on the long-term potential of their assets and how regular additions keep risks low.

Lower Transaction Costs

Most trading activities incur taxes, brokerage fees, commissions, and spreads, depending on the broker, their trade assets, and the market conditions. The more frequent transactions investors make, the more fees they pay, which could dig into their potential returns. This is a significant problem for short-term speculators, especially those trading with brokers with high fees.

However, long-term hodling reduces transaction costs because it involves fewer trades. Most long-term investors buy once or may use dollar cost-averaging (DCA) to accumulate more of the asset. Investors using the latter strategy still have fewer trades than short-term speculators and can lower overall costs.

Riding Out Short-Term Market Trends

Windfall losses are common with short-term traders, especially in volatile markets like the crypto market. Although it could lead to quick profits, the risk of significant losses when the market moves against the speculator makes holding more attractive. This is especially true for speculators who are stuck within short-term trends and become the ‘playground’ of financial institutions with massive capital.

For example, BlackRock, the investment company, has shown it can manipulate the price of Ethereum after selling 8,172 ETH in June and then buying thousands of ETH in July. These actions by large financial institutions create short-term price changes that may lure and confuse speculators but not long-term holders.

Historical Data Supports Hodling More Than Regular Trading

When anyone studies price charts, they’ll find that in most cases, most assets, whether crypto, currencies, shares, or currencies, tend to stay bullish in the long term. They would maintain their overall bullish run, usually on the monthly or yearly charts, while the weekly, daily, and lower timeframes show many changes.

Bitcoin, Ethereum, BNB, LTC, and many other cryptocurrencies have shown this feature and have been bullish since their release. Since 2011, BTC returns have exceeded 20,000,000%, while Ethereum is up 847,769% and LTC, 9,880%.

One reason for this is that many investors play the long-term game and keep stacking their funds into the asset. In many cases, they eventually sell off for huge profits, leaving the asset either much lower in value or dead with no market value.

Investing the Right Way

Market analysis is crucial to any trading strategy. For traders to succeed, they must learn to read how markets trend, react at key levels, and understand the factors that move markets. Although hodlers typically spend far less time on the charts than speculators, this does not remove the need for them to study price action to understand the overall monthly trends.

 

It is also important to trade with a broker/platform that enables long-term investments without issues. This is crucial because brokers may have various fees for speculation, while owning the underlying asset incurs fewer fees. But hodlers may track on-chain data such as active addresses, transaction volumes, exchange inflows and outflows, supply distribution, hash rate, network activity, and total value locked (TVL).

What Strategy is Right for You?

Hodling consistently outperforms speculation, but that does not mean speculation is bad. It is best to combine both strategies in the right way. Traders can use DCA to accumulate cryptocurrencies while speculating on short-term price movements for quick returns. However, it is necessary to recognize the psychological aspect of speculation; traders who prefer it should stay off lower timeframes to avoid heavy fluctuations.