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UNDERSTANDING SOME POPULAR CRYPTO TERMINOLOGIES/ACRONYMS AND THEIR FINANCIAL IMPLICATIONS.
Just like in other fields, the crypto-space possesses its fair share of exclusive terminologies that could easily confuse any new participant.
While a lot of these terminologies sound informal, playful and slangy, almost all of them have deep financial implications that are important and necessary to understand.
In this educational series, we’ll be examining some of these terminologies and explaining those financial implications.
WHITEPAPER.
A whitepaper simply refers to a document that explains in detail what a crypto project is all about. This document includes everything you might need, to effectively understand the project.
It usually begins with defining the project: the problem that exists, how the project intends to solve it, a breakdown of how the project operates, with other details like tokenomics (when the project has a token).
The size of a whitepaper depends largely on the complexity of the project and how much information the team is willing to release about the project. A lot of crypto investors find whitepapers to be boring and often do not have the patience to read them before investing in a project. However, for you to make sound crypto investment decisions, you should make it a habit to study the whitepaper of the project you’re interested in.
DYOR[ DO YOUR OWN RESEARCH].
Usually, when you ask someone else in the crypto space for tokens or projects to invest in, you might get the reply “DYOR”. while that reply may annoy you, since you just want to be told what to buy, DYOR is one of the most important pieces of advice that can be given to any new or old crypto investor.
Doing your own research is the same as conducting your own fundamental analysis on projects. If you’re unable to research by yourself before making investment decisions, then you should be ready to lose all your money listening to paid influencers.
It is a disastrous investment practice to base your investment decisions on what a regular third party tells you. All the tools necessary to make your research and arrive at an informed investment decision are readily available for you if you’re ready to put in the effort. Learn how to do your research and potentially save yourself from financial ruin.
HODL[ HOLD ON TO DEAR LIFE]
HODL is a terminology used in the crypto space to urge other investors to incorporate the habit of holding their investments for longer periods. It is usually a way of advising crypto investors to practice long-term investments rather than short-term swing trading. The argument in support of HODL is that, if you hold a good investment long enough, the intermediate volatility in price wouldn’t matter and you may end up profiting significantly from your investment in the future. A common example that backs this ideology is the price of bitcoin over ten years. While short-term traders were busy looking for the best entry and exit points on their bitcoin investment, long-term investors that simply held on for years ended up profiting massively, without having to bother about the price swings that occurred during the time they held.
However, everything has its merits and demerits, “HODLing” can be a profitable practice in some instances but in other cases, it might be an extremely unwise way to invest. Some tokens shouldn’t be held for very long periods if you don’t want to lose all your investment. As a crypto investor, you should know when to take profit from an investment or cut your losses without having to hold onto such investment for a very long time. For example, it would be unwise to HODL onto a meme coin for 10 years considering their lack of any substantial intrinsic value.
DIAMOND HANDS.
diamond hands is the terminology used to describe a crypto investor that effectively holds on to their investment without selling for a long time, irrespective of whether it has accrued significant unrealized profit or loss.
Being a diamond hand takes a lot of financial discipline because most crypto investors end up selling their stake at the slightest sight of profit or loss.
To be a diamond hand, you need to have a strong conviction in the prosperity of the project you’re investing in and have a price target you believe the token of that project will eventually hit.
That way, any price movement that occurs on such investment in the short and intermediate-term will not faze you until it hits your price target.
diamond hands are usually admired due to their level of financial discipline and their ability to hold onto a project’s token until it makes them life-changing money.
However, on the other side, we also have people who diamond-handed bad projects and ended up losing their investment, therefore you might want to be careful about the type of project you intend to diamond hand.
PAPER HAND.
Paper hand is the opposite of a diamond hand, they include investors that cannot hold onto their investments and end up selling at the slightest sight of profit or loss. Generally, it’s not advisable to be a paper hand, if you do not have enough conviction in a project to hold onto it for a while irrespective of its short-term volatility, then you might as well not invest in it at all. If everyone was a paper hand, tokens will not survive the market, and there are instances where potentially good projects and tokens have failed to survive because the majority of people that invested in the token were paper hands that couldn’t hold onto their investment for a reasonable duration.
Naturally, paper hands are not favoured within the crypto space and are usually insulted and called names, however, there are instances where being a paper hand is a sound investment action. For example, if you invest in extremely speculative crypto assets like meme coins and NFTs, you’ll be better off selling your stake at the slightest sight of profit, because these assets do not have enough intrinsic value to sustain their price action and they end up crashing after people lose interest in them or at the slightest impact from FUD.
FUD[ FEAR, UNCERTAINTY AND DOUBT]
FUD refers to any activity or action that is targeted at shaking investors’ confidence in a particular asset or market, making investors fearful and uncertain about their investments.
Most times, FUD comes in the form of rumours or news about a project. These rumours or news are usually speculated to hurt a project and cause panic, which leads investors to panic-sell their stake in a project, ultimately causing prices to crash.
FUD can either affect a particular project or the general market. An example of FUD that affected the general market was when China announced its ban on cryptocurrency in the country last September, considering that China had one of the largest numbers of crypto investors and miners, this caused many investors within and outside the country to become fearful and uncertain about the future of bitcoin and their investment, ultimately resulting into a period of panic selling that saw the prices of almost all crypto assets except stable coins crash.
As a crypto investor, you should be able to know when a piece of particular news is likely to spread FUD in the market and cause prices of tokens to crash, if you are a trader you might want to hedge against it, however, if you’re a long term investor, you’ll come to realize that FUD is a fundamental part of the market. There’s a general theory that institutional and government investors often sponsor news that causes FUD in the market so that prices can crash and give them a discount entry into certain cryptocurrencies. Not all news targeted at causing FUD should be taken seriously, you should know when not to be fazed and hold onto your investment.
FOMO[FEAR OF MISSING OUT]
This is probably one of the most popular crypto terminologies. FOMO is a Psychological and emotional situation faced by most crypto investors. It happens when the market or a token is increasing in value significantly and investors are watching it in real time, some of these crypto investors who were not invested in that token initially, may feel a strong desire and urge to jump into the uptrend by quickly buying into the token while it’s making it’s run up. That urge is what is termed FOMO.
Generally, FOMO is considered a bad investment action. As a crypto investor, you should try as much as possible to refrain from investing in a token just because it’s going up at the moment. Usually, when a token has experienced a significant uptrend movement, there is always the possibility of a temporary or significant drawback, due to early investors selling such token to secure profit. At that point, if you FOMO into a token, instead of participating in the uptrend, you might end up getting caught in the drawback which will instantly result in a loss.
Therefore you’re advised not to FOMO, the markets are extremely volatile, if you’re interested in investing in a token that is experiencing a significant uptrend, the best you can do is to wait for a temporary pullback before securing a position in that token.
CONCLUSION.
There are so many crypto terminologies and we cannot possibly cover all of them in one article. while most of them sound like mere slangs, they all have deep meanings that should be examined and understood adequately. In the subsequent series, we’ll discuss more terminologies and their financial implications.
For now, we hope you now understand the full meaning behind the terminologies we’ve examined above and wouldn’t have any trouble understanding sentences and statements that contains them.
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DISCLAIMER: PLEASE NOTE THAT NOTHING WRITTEN ABOVE CONSITUTES FINANCIAL ADVICE AND IS MERELY FOR EDUCATIONAL PURPOSES ONLY.
