To hodl or not to hodl

That is the question. If you have recently found yourself with a bunch of ethereum that is worth a lot of money, what do you do?

First, welcome to first world #cryptoproblems. If you’ve managed to hodl this far, then good on you, as that is no easy feat. And if you are like me, the next problem that comes to your mind and keeps you up at night, “What should I do now? Should I sell? Or hodl for more?”.

First world #cryptoproblems

Not surprisingly, there aren’t too many pieces out there on this topic. So I thought I’d share my thoughts in hopes that they are useful.

I hope to provide a framework of thought that can be applied to your personal situation and help in decided how to manage your new found wealth.

Risk Vs Reward

The basics are the same: it is still all about risk vs reward. And while true, that’s about as useful as saying the market price goes up with people buy and it goes down when people sell. So let’s break this down a little bit.

The tricky part about this is the “reward” side of the equation. Your rewards for holding have diminishing returns given the same amount of risk. That is to say, the difference between $0 and $1M has a larger impact on your life vs the jump from $1M and $2M; in the first scenario, your quality of life has a dramatic change — you can buy a house and not worry about rent, pay off debt etc. In the second scenario, you still gained a million dollars but what can you do now that you couldn’t before? Maybe buy a nicer car. A more dramatic example to drive the point home: if Warren Buffett made another $10M dollars today, he wouldn’t even notice — it doesn’t give him more freedom than he already had.

More money helps until a certain point

When you think about that fact, the conclusion is that your appetite for risk should decrease as you make more money, all other things being the same.

Goal Setting

I really fixated on the $0 to $1M example. I wanted to understand what was so special about $1M. So I built a spreadsheet for myself with all my life expenses.

I played with several scenarios; for example, one where I had a nicer house, or a larger travel budget. I turned these into annual expenses, so for example, $5000/yr to spend on a yearly trip or the more extravagant $20,000/yr to spend on multiple trips in several different countries each year.

If you are familiar with /r/financialindependence, then you can see how once you have a lifestyle with a yearly expense like $100,000/yr, it is easy to calculate how much money you need to ‘retire’ with that lifestyle.

In my personal exercise, I had several scenarios.

There was modest retirement without kids: $40,000/yr; which meant if I could invest $1M at 4% annually, I could live off the interest indefinitely. In practice, you’d want to give yourself some wiggle room incase you can’t maintain 4% interest for some years.

I had a more luxurious retirement with kids: $120,000–200,000/yr, which is roughly $3–5M at 4% annually.

And then, my wildest dreams. The house. The car. Travel every other month. Discretionary entertainment budgets. Personal assistants. And weekly massages. This turns out to be $600,000/yr, or $15M at 4% annually. It turns out that if you actually try to think of realistic ways you’d spend money, it is surprisingly hard to spend $600,000/yr.

Now, I know you can easily spend $600,000 on a nice car but that’s not the point. Having these scenarios gives a reference point to make all these numbers have meaning.

Inflection Points

This is where your personal life goals will come into play. You need to figure out what would you do if you didn’t have to work anymore. Try planning a few scenarios out in terms of yearly expenses. Then, figure out how to much money you would need to live that lifestyle. In my example, I would just take my year expense and divide it by 0.04, because I assume 4% annual interest — your numbers may vary.

The main takeway after this exercise is that you’ll find your key inflection points in terms of having a significant improvement in the quality of your life.

Inflection points in quality of life

In my case, with $1M of cash that’s a huge step from where I am now in terms of happiness and being able to retire with a modest lifestyle. Securing that is fairly important. The next big jump in lifestyle for me comes in at around $3–5M. I want to have a decent shot at that but I wouldn’t risk losing my $1M way of life. So I should sell enough to get me past that first milestone; I also have the confidence to hold the rest because I know it won’t really change much until I can hit my luxury retirement milestone. And frankly, it is nice to know that the ultimate milestone is there as a stopping point — a point where I can just stop caring.

One last point, don’t forget to account for taxes in your numbers, when you sell your position.


This isn’t suppose to be an exact science and this isn’t meant to be financial planning advice; this is just a lose framework for how to reason about understanding how much risk you should take for the rewards.

It isn’t obvious but the rewards have diminishing returns and you should adjust your risk according to the inflection points that come from your life goals. This will give meaning to the numbers.

Best of luck in your crypto journey.

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