In this post, we will be discussing the topic, “Definition of a bag holder in crypto and investment”. We will also look into, “Who is a Bag holder “, “What affects bag holders”, “Loss Aversion and Disposition Effect “. Other important topics like “sunk cost” will be discussed as we proceed.
Who Is a Bagholder?
A Bagholder is an investor who continues to hold large amounts of a specific coin or token. The investor does not sell their assets, even if its price drops to zero. It also means a shareholder who is left, holding shares of worthless stocks. The word is obtained by joining shareholder with the phrase “left holding the bag”.
One will wonder why this should happen. Some factors influence this. The best reason is, the holder believes that, by holding the asset for long, it will gain more value. Then, it will over shadow the loss.
The bagholder buys an asset when it is at the peak. The asset remains with the bagholder, till it drops value. It then leads to lost of money.
Another meaning of bagholder is a bearer of any worthless financial instrument. Such instrument include a shit cryptocurrency, etc.
What Affects Bag Holders ?
What really affect bagholders is, the refusal to sell off underperforming assets. The fail to realize that, profit can be made from other assets. This can be due to their lack of interest or time consciousness. It requires skill to monitor cryptocurrencies. This is because of their high volatility.
It is believed that this volatility is caused by, spikes in crypto investment. This is done by people without experience about the asset. Investors lose interest, when the lose huge amount of money.
Illustrations of bagholding are widespread. An investor bought Bitcoin years ago, and left it. It was left for a long time, not knowing the value of Bitcoin. Another example is an investor who stored his Bitcoin in his hard drive. He neglected it for years without knowing the worth of the cryptocurrency. It was later recovered.
Want affects bag holders is also misinformation. A lot of people mistake bag holding for HODLing. Although the are closely related, the do not have the same meaning. HODLing came from the misspelling for HOLDING. It referred to holding coins or tokens. This is as a result of poor trading knowledge or skill. HODLing now represents “Hold On for Dear Life” in crypto space.
Additional Details on Bag Holding
Definition of a bag holder in crypto and investment is, an investor who holds a position in an asset. Such that it decreases and has no value. Some investors, still hold unto the asset, even at its worthlessness.
- The word bag holder is a slang. It represents an investor who holds onto a worthless asset. The investor hopes it will regain its value.
- Certain situations backs bag-holding action. Investors try to solve the loss instead of recovering profits.
- Investor who are bagholding, losses a a lot of money.
Comprehending Who Bag Holders Are
There is another brief history of the term “bag holder”. It is claimed to have originated from the Great Depression. This is from the Urban dictionary. People stood in lines with their little possession in potato bags. The gave it in exchange for soup.
Like we discussed earlier, a bag holder is an investor who keeps stocks that are worthless over a period of time. Let us assume an investor purchases 100 shares of an asset. It begins to rise during the initial public offering (IPO). Then, it quickly begins to fall. This happens after an analyst questions the sincerity of the business.
When an asset is not performing well, it will send a signal. This shows that the company is facing challenges. It also shows that the value of the asset, keeps dropping. An investor is regarded as a bad holder, when still in possession of the worthless coin.
The negative attitude of bag holders, is that the easily fall for disposition effect. That is why the fail to dispose the under performing assets.
Loss Aversion and the Disposition Effect
Many will wonder, why some investors hold on to worthless assets. Well, there are reasons for that. Investors might just purchase an asset, and forget about it. This makes him not to keep track of the asset’s performance.
They may not also sell it, so they won’t be embarrassed. This is because, they invested a poor asset. This leads us to disposition effect. It is a situation, where investors prematurely sell shares. The prices of this shares keep increasing. Yet, the investor chooses to keep the low performing asset. In holding the asset, the believe it will gain back value.
Another illustration that explain this is the prospect theory. In this theory, individuals make decisions that are based on obvious gains, rather than perceived losses. When an investors chooses to receive $50 rather than $100, that is because he or she doesn’t want half of the asset to waste.
Most times, people refuse to work for a length of time. This is because, they may incure high taxes.It was observed that outgoing funds yield a better profit.
The Sunk Cost Fallacy
Like I said earlier, the reasons for bag-holding is much. Another reason is the sunk cost fallacy. It is why an investor may become a bag holder. Sunk costs are irrecoverable expenses that have already occurred.
For instance, if an investor buys 100 shares of stock at $10 per share, in a transaction valued at $1,000. If the stock goes down to $3 per share, the market value of the asset you are holding is now just $300. The $700 loss is what is known as a sunk cost. This situation may remain constant. The investor holds the asset, hoping it will appreciate.
Most Investors are bag holders. The really don’t realize when there is a fall in value. The refer to it as an unrealized loss. This holding on bag, obstruct unforseen circumstances.
I believe, we really touched a great part bag holding. Below are some ways, to know if an asset is a bad holder. Firstly, if a firm is periodic, its share price fluctuates. The old patches may lead to a change in share price.
What happens when a company’s fundamentals are crippled? When this happens, the share price may not regain value. However, a signal may be called by a stock sector. This is to signify that the assets can still perform well.
With all we have discussed, I believe you found the topic informative. Now, you should know the “Definition of a bag holder in crypto and investment” and “Sunk cost”. Also, know “Who is a Bag holder”, “What affects bag holders”, “Loss Aversion and Disposition Effect “. Incase you need more clarity on the topic, you can conduct more research.