Market Implications of Long term and short term crypto holding

[TL; DR]

Crypto holders keep cryptocurrencies even when their prices are falling.

Users who have a strong conviction that the prices of cryptocurrencies will rise hold them.

Short term holders store their cryptocurrencies for a period of less than 155 days while long term holders keep them for over 155 days.

Long term holders buy cryptocurrencies during bear markets and sell them during bullish periods.

Short term holders buy cryptocurrencies during bull markets and sell them during bearish periods.

Keywords: Long term holders, short term holders, hodlers, hodling, bear market, bull market

One factor that differentiates cryptocurrencies from other investment instruments is their level of price volatility. Their prices can fluctuate within a short period such as 24 hours. In some cases, the prices change significantly within hours. However, there are investors who aim to get quick returns. Such speculators look for opportunities to buy cryptocurrencies low and sell them high within a short period. In spite of this, some investors avoid short termism as they also come with risks. Therefore, they choose to buy and hold their cryptocurrencies for long periods. As a result, we have two types of crypto holders, short term holders and long term holders. We shall discuss these two groups and their implications on the crypto market.

Crypto holding

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In order to gain full insight in the behaviors of short term and long term crypto holders we should understand what holding, in this context, means. Holding, also called hodling, means holding on to investment assets such as cryptocurrencies even when prices are falling. In other words, the investors do not sell the cryptocurrencies even if their prices are temporarily decreasing. They hold on to the cryptocurrencies with the hope of getting better returns in the future as they anticipate constant increases in their prices.

Source: Businessinsider

The term hodling came into existence after one Reddit user, GameKyuub, spelt the word holding wrongly. He wrote ‘hodling bitcoin’ instead of ‘holding bitcoin’. From that time on, crypto users used the term hodling interchangeably with holding cryptocurrencies. In the end, the crypto enthusiasts use HODL as an acronym for Hold on For Dear Life. Now to clarify more, holding cryptocurrencies means keeping it in the digital wallet, not spending it. Usually, investors who prefer the hodling strategy buy and hold cryptocurrencies which are undervalued at that time. Hodling helps to reduce losses associated with short term fluctuations of cryptocurrencies. The investors who buy cryptocurrencies and keep (hold) them for a long time, waiting for their prices to rise are called hodlers or crypto holders.

The two types of crypto holders

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As we have already hinted, we have two types of crypto holders depending on their market behaviors. These are short term holders (STHs) and long term holders (lTHs).

Short term holders and long term holders

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Here, we use Glassnode’s definitions and time limits to differentiate between short term and long term holders. The dividing point between short term holders and long term holders is 155 days. All the crypto users who hold their tokens for a period of less than 155 days are called short term holders. On the contrary, the investors who hold their cryptocurrencies for any period over 155 days are called long term holders. In all, these holders are different from traders who want to benefit from price changes within a short time scale. Basically, traders can buy and sell their cryptocurrencies within short time frames such as one hour, four hours or a few days.

Source: Cointelegraph

In their statistical analysis, Glassnode concluded that the cryptocurrencies that remain in wallets for a period of more than 155 days are unlikely to be spent. It is important to note that when considering hodling the user should not move his/her cryptocurrencies between wallets. Once a user moves a cryptocurrency from one wallet to another, it is considered spent tokens.In most cases, firm believers in a cryptocurrency are the ones who hold the token for a long period of time, even years. bitcoin holders are a specific group of investors who have held their BTC for a long time, anticipating constant increase in its price.

The market behavior of short term holders and long term holders

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Short term holders and long term holders behave differently in the market. Long term crypto holders often sell their holdings during a bull market. This is because they get high profits when the prices of cryptocurrency are high. Therefore, they avoid selling their holdings during bear markets. In most cases, the long term holders sell-off most of their tokens at the peak of the market. Conversely, they accumulate the cryptocurrencies during bear markets. As such, the LTH supply decreases during bullish periods and increases during bearish markets.

Source: Newsbtc

The opposite is true regarding short term holders. The short term holders, who are usually active traders and new entrants into the market, buy the cryptocurrencies during bullish periods and sell during bear markets. They buy and hold the cryptocurrencies during bullish periods as they anticipate further price increases. On the contrary, they sell their holdings when prices are falling.

Looking at the behaviors of the short term and long term holders something is evident. When most long term holders are selling their holdings the short term holders will be accumulating. By the time the short term holders are selling off their holdings the long term holders are buying the dip. As a result, STH supply increases during bull markets and decreases during bearish periods.

Conclusion

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Holding cryptocurrencies enables investors to benefit from long term price changes. The reason is that they buy while the price is low and sell when it has gone up. The investors who buy and hold cryptocurrencies waiting for their prices to rise are called crypto holders. Some users hold cryptocurrencies for short periods while others do so for a long time. Long term holders buy cryptocurrencies during bear markets and sell during bullish periods. On the other hand, short term holders buy cryptocurrencies during bull markets and sell them during bearish periods.

Author: Mashell C., Gate.io Researcher

This article represents only the views of the researcher and does not constitute any investment suggestions.

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