Tuesday, 7 November 2017

Why you should hodl (hold) before a fork

The trouble with buying additional bitcoin just before a fork is that the price inflations will counteract the value of the new coin.

 

Look at the previous case. BCH (bitcoin cash) came out as about $300-400 after the first fork in July. That was about 10% the value of the btc.

 

So if you panic-buy before a fork, you should not buy more than 10% of what you hold.

 

For example if you buy 0.1 btc now, it will cost R 10 000, or about $ 700. But after the fork, the value might collapse all the way back to $4500 or so. Meaning you lose about R 5500 / $ 400 value.

 

However, assuming 0.1 of the new coin is worth 0.1 of $ 300, you’ll make $30 from the new coins. $30 doesn’t compensate for the post-fork losses of R 5500 / $400.

 

In other words, when a fork comes up, hold or sell. (You can buy back when the market hysteria dies down at a lower cost).

Here’s an example of a fast buy/sell cycle.

Suppose you buy 1 BTC at $ 4000 at time X

Suppose a fork comes up and the price of 1 BTC goes to $ 7000 (like it just did), at time Y, just before the fork

The value increase is $ 3000.

Now, if you sell 1 BTC, you gain $ 3000 on your initial investment of 1 BTC.

Suppose after the fork, the price crashes down to $ 5000 - not as low as you originally bought at, but lower than the pre-fork hysteria price of $ 7000.

You wait for the crash to finish and the price to stabilise, and buy back at $ 5000.

You still have $ 2000 in the bank that you can keep or use to buy additional BTC.

If you decide to take your $ 2000 profit into BTC, you can get 0.4 BTC.

That means by selling just before a fork, you can come out at 1.4 BTC instead of 1 BTC with no actual material losses.

At the next fork, your 1.4 BTC won’t be a mere $ 7000, assuming the hysteria carries 1 BTC to $ 7000 again. Your 1.4 BTC will then be $ 9800.

Sell just before the fork, wait for the post-fork crash, and buy back at a lower price.

Rinse and repeat.

 

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