When is HODLing a bad idea?
I know you know me as Adetomiwa, the brilliant writer at Breach (thanks 😏), but I have had other identities.
One I’m most fond of is “unique jewellery collector”.
There was a time in my life when I was obsessed with owning unusual rings, necklaces, earrings and such. I would spend hours on little-known websites, group chats and thrift shops looking for the perfect piece(s) to add to my collection.
It was fun, but it took up much of my energy, and sometimes it was a complete waste of money. There were times when I would order an item and upon delivery, I would realise the description was a complete fabrication. This happened even with sellers I had bought from in the past.
Many of these items were non-refundable, so while I ended up with some truly timeless pieces I still have, I was also stuck with many pieces that I could really only use as conversational anecdotes.
My life as a professional jewellery hoarder is no more. However, it left me with life-long lessons that I have found useful in many life and money-related situations.
But the current state of the crypto market showed me that there is one important lesson my adventure did not teach me: how to know when keeping my money tied up in investment is no longer worth it. In other words, how do I know when to stop HODLing?
I called Augustine Kingdom, a crypto-educator and Project Manager at crypto investment platform Near Finance Protocol, to find out exactly how to answer this question. He told me the first step is to “follow your money”.
Augustine says one of the things he never fails to do is to pay close attention to the community around the project or crypto he intends to invest in. Augustine follows all social media accounts (like Twitter, Telegram, and LinkedIn) and online publications (like Medium or their blog) of the project he is investing in to see if they are active, and to stay up-to-date on any announcements they make.
Interestingly, other investors have also shared this same tip but Augustine takes it further by investigating their team. “I use Google lens to check out every team photo they put on their website”. If he finds any inconsistencies — which he has “many times” — he steers clear of the project. “If you can’t be truthful about something as basic as your team, that is a red flag,” he adds. If they pass the initial tests, he then moves on to check credentials on LinkedIn — “What is their previous work experience? What do they talk about?”
However, he adds that pre-investing research is not enough, emphasizing that “even after investing, you still need to stay on the project and follow your money”.
Augustine’s guide to following your money:
#1: Keep an eye on the community.
Augustine emphasises that anyone who invests in cryptocurrencies should understand beforehand that these are volatile investments, so there will be times when prices rise, and there will be times when they fall. He says the price drop seasons are some of the best times to watch the community because “the community is often valuable to a crypto’s survival”.
“These are the people who will invest in the project and increase its value”, he says. So the growth and level of satisfaction of the community that is built around the project often correlate with the success of the cryptocurrency.
He explains that when the community starts to turn on the project, it might be time to let it go. And sometimes, what triggers the domino effect of loss of confidence in the project is how the founders and team building the project begin to react to their community during a price fall.
“If I see the CEO change their tune, I know it’s time to pull out”, he explains, noting that sometimes, owners or managers of projects lose their cool and get aggressive with the community that is upholding them. When this happens, the community starts to lose trust in the project and the potential for surviving the dip drops by a mile.
#2. Keep track of the company roadmap.
Augustine says one of the foundational platforms to keep an eye on is the company’s website. He advises to “study their goals and the company’s road map”.
“Before you invest, pay attention to what the project is trying to accomplish and decide if you think it’s a goal you believe in and you’re willing to stake your money on long-term”, he adds.
Once you’ve invested, still keep an eye on their milestones. Most companies have their roadmap displayed on their website and you can “check if they have delivered on their goals or they have dropped the ball at any point”. If at any point it seems like they are diverting from their original goals with no communication of changes, it might be time to consider letting go of the project, especially if your intention is to HODL.
#3. Confirm team activities
You don’t want to keep believing in a project the team seems to have given up on or moved on from, says Augustine. So you need to be paying attention to what the team members are talking about on their social media platforms — if they are still active in the project’s community and if the project is still building.
If you find that the team members are mostly quiet, “it’s time to cut your losses and sell”, says Augustine.
Augustine however acknowledges that sometimes, inactivity does not mean the project is done forever. He recalls one project where the team had been inactive for a while, but months after, another company bought them off and the value started to rise again.
Of course, I wanted to know if it’s possible to know which project might make a comeback. Augustine says this is where your gut feeling comes to play. “If you have done all the due diligence and the community is still respectful to each other”, then you may consider keeping your HODL on a project that seems inactive.
However, he warns — as we have learnt from other Schooled by Breach episodes — that it is key to “never invest money you can’t afford to lose in highly volatile markets”.
Augustine’s guidelines have definitely helped clear my confusion. I now know that just passively waiting and holding on to a project that will bring me long-term rewards is not enough — I must also be vigilant. If I am ever unclear about the direction a project is going, it is up to me to ask questions and use the leaders of the project’s response (or lack of) to guide my decision. I must also stay close to the community because people play a big role in the long-term success of cryptocurrencies.