What Are Baghodlers?
To keep things short and simple, the term “bag” in the crypto market is a slang which means the total number of cryptocurrencies held in your portfolio.
When you decide to hold a given number of cryptocurrencies with a large amount of value, you will be referred to as holding a “heavy bag of cryptocurrencies.”
Key Takeaways
• Becoming a baghodler is a sure-fire sign that you haven’t been doing enough homework on your cryptocurrency portfolio.
• Investors can unintentionally become baghodlers when they fail to stay informed about the latest happenings in the crypto market.
• The Prospect Theory states that investors become baghodlers because of anticipated gains rather than losses they hope to achieve, and so the decision to hold.
• The Sunk Cost Fallacy is the notion that investors become baghodlers because they want to gain a fair price for their bag as compensation for the unrecoverable expenses they have accrued in the process of acquiring said bag.
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Hence, a baghodler is an investor or a hodler who hodls this bag for a given period.
It is important to note that baghodlers can even hold their bags in times when the crypto market is bearish, perhaps with the optimism that the market will recover and they will gain a lot after holding these bags.
Let me give a scenario to paint a better picture of what makes an investor a baghodler.
Scenario
Henry is an investor who purchases crypto coins from a new technological startup. The introductory stage of the Initial Coin Offering (ICO) comprises price growth, followed by a reduction owing to various factors after some time.
Following the reports and price analysis, the coin’s price falls. Despite this, Henry decides to go against what most investors typically do during a price fall.
He holds on to the crypto coins, believing and hoping that the price will recover again and he will benefit from doing so. In this scenario, Henry can be referred to as a baghodler.
There are several reasons why investors choose to become baghodlers. Some think that investors that become baghodlers do not study the market trends to know what is actually happening in the crypto market.
They probably do this because they are optimistic that the market will recover and their bags will skyrocket in value or because they are too busy monitoring the performance of their crypto holdings.
Either way, I will be listing seven reasons why I believe some investors choose to become baghodlers. These reasons are listed below:
Demerits of Being a Crypto Baghodler
1. The investor does not understand the workings of the principles that govern the movements of the crypto market.
2. The investor, more often than not, believes that he stands to gain more if he continues to hold his bag for when the market recovers in the future rather than sell it off immediately.
3. The investor might be actively engaged and, as such, may not have the time to monitor the performance of his crypto holdings in the market.
4. Sometimes it may be that the investor is not informed of a consistent decline in the performance of his crypto holdings in the market.
5. A factor that could also lead to an investor becoming a baghodler is known as the Disposition Effect.
This effect addresses the psychological nature of some investors who may choose to hold and sell their bags when the market has recovered and the value of their bags has increased significantly.
The effect states that a person hates when they lose more than they enjoy their win, leading to making abrupt decisions.
6. Another factor that leads to investors becoming baghodlers other than the disposition effect is referred to as the Sunk Cost Fallacy.
The Sunk cost fallacy is the notion that investors become baghodlers because they want to gain a fair price for their bag as compensation for the unrecoverable expenses they have accrued in the process of acquiring said bag.
7. Lastly, a theory referred to as the Prospect Theory states that investors become baghodlers because of anticipated gains rather than losses they hope to achieve, and so the decision to hodl.
To prevent yourself from becoming a baghodler as an investor, it is important that you do proper research and analyzes the market trends so as not to make abrupt decisions that you might regret later.
Accepting the fact that you will not always profit from investments in the crypto market and moving on will do you a world of good.
You can also seek the help of a qualified professional financial adviser to provide you with financial advice should you feel confused or unsure of the next step to take.
Final Thoughts
As crypto investors, we sometimes tend to make abrupt decisions, probably out of frustration. Hence, it comes as no surprise that some of us end up as baghodlers willing to go all the way.
For this reason, we must constantly do our part, such as monitoring our crypto performance and seeking advice when needed, as this will be beneficial to us in the long run.
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