Diamond hands X Paper hands
Today, I will start telling you a story about a friend of mine, Jeff. He is what you would consider an average investor, who often tells me that his strategy is: to buy high and sell low. It’s usually a bad situation, but not this time. You even might have a friend like this, who invests more than he should, and when the price starts dropping he just says “ I’m out!” and sells for whatever he can salvage out of that coin.
Though Jeff didn’t fall for the Dogecoin trick, I’m proud of his growth so far, but this had me thinking about a subject that I can cover in this blog post called “diamond hands X paper hands”. Which hands should you be working with? Let’s find out.
Diamond hands
Diamond hands and paper hands are both subjective terms. This means they differ for every person using them. The people on wall street call it diamond hands when you boldly hold on to a poop coin and never sell.
So where did this diamond hands term come from? Well, diamonds are strong and they can push through anything. They are forged in heat and pressure throughout time, and no matter what the market is doing, anyone with a pair of infamous diamond hands will hold on to their investment, even if it adds another zero or if it drops to zero.
The idea here is that they believe in the project that they invested in and aren’t worried about short-term price changes.
The downside
What’s the problem with this? It isn’t always the best financial move, sometimes coins can be overvalued. For example, Pancake Bunny had a major attack. A flaw in their smart contract code let an exploiter run away with 45 million dollars, using something called a flash loan.
If you’re curious about what a flash loan is, visit our article about them here. Basically, it’s a cryptocurrency loan that allows you to borrow a massive fat stack of cash for absolutely zero dollars down. Yes, this is a wet dream for every average investor. Anyway, this person borrowed 700 million dollars for free, exploited the bug and pancake bunny, and then paid back their loan and walked off with a nice gain of 45 million.
You might be asking why didn’t they take more than 45 million? Well, it’s because they couldn’t. They dropped the price of pancake bunny down by selling it all. They couldn’t sell more if they wanted to, so that’s why they stopped.
A reasonable person would realize that pancake bunny is now supersaturated with a ton of tokens that should not be there because that’s essentially what the exploit did. The tokens were minted in a few seconds, and it’s easy to realize that this makes the coin almost worthless, right? No, people are still investing in the coin, even though the project has been hacked, and the coins should be worthless based on supply and demand. That’s the issue, people are still demanding this token for who knows why.
Paper hands
It’s paper hands when you decide to sell, either because it’s “mooning” or because you’re now uncomfortable with your investment, or there is a sign of trouble.
If a coin or a token dropped maybe 1% or even 5%, a paper-handed person would sell immediately, and this is known as having weak paper hands. Investors with paper hands are also more likely to sell as soon as their investment turns green, or they make their money back. Some paper-handed people are in it for quick gains, not the long-term sustainability of whatever project they’re investing in.
Let’s say a major coin like Ethereum drops 10% overnight. A paper-handed investor would sell in fear that it would drop even more, and then they could lose even more of their profits, even though Ethereum is one of the biggest players out there, with tons of projects and decentralized applications being built on it, and a huge team of developers.
Another investor who could have been called paper-handed is someone who invested in pancake bunny when the price was $50 back in February of 2021. In May, the price raised to a staggering $545. That is more than 10x their money. Let’s say they sold when they 10x their money at around $500. Technically, they were paper-handed, but do you think that they care about that? That they got in, made a 10x return, and then got out? No, they’re probably even happier now knowing that the price of pancake bunny hit almost zero dollars overnight
What if pancake bunny fixed their bug and, now they’re back stronger than ever? Maybe the community who invested believed in the product so much they bought even more tokens at a much cheaper price. Since now these tokens are almost free, this could drive up demand and then the community could rally and maybe the pancake bunny token price will soar even higher than the past all-time high of $550.
Which hands are the best?
I gave this pancake as an example to help you understand the question: which hands are the best for you? Because this is a question that only you can answer. My goal here is to help educate people just like yourself on how cryptocurrency ideas work, so that way you can do your own research and then decide for yourself. Each investment is its own journey, and if a token is up 500%, you should evaluate whether it’s worth it to get out, or if you’re in it for the long run.
Selling your buy-in
One common play is to slowly sell out of your initial investment as the price rises. For example, I bought around 500$ worth of a token. The token went up from two cents to three cents, then to five cents, and each time it went up, I sold out a little bit more of my initial investment. Eventually, there was a point where I had cashed out my entire initial investment, and still had $2000 worth of the initial coin, because the price just kept increasing.
Even if the price mimicked pancake bunny, I would still be covered because I took out my initial investment and I kept telling myself what goes up must come down. Now, the price is back to four cents and I’ve made a profit of over $1500 just by doing my own research and slowly cashing out of that token.
Exit strategy
Another thing that helps many smart investors is to have what is called an exit strategy. For example, if Ethereum hits $10,000 within the next year, I will probably be cashing that out to fiat money, taking a vacation, or putting a down payment on a house. Why? Because it means that I will have more than quintuple my money.
In my opinion, what’s the point of having money locked up if you can’t use it to live a good life? An exit strategy is a plan that you have based on the value of your investment. You might tell yourself “if this price doubles, I’m taking out my initial investment and leaving the rest in long term” or maybe something like “if the price goes down below half of what I bought in, I’m selling because I believe other people aren’t believing in the project long term, and that’s a good reason for me to abandon this project as well”.
You can have whatever exit strategy you can come up with, but the purpose of an exit strategy is to help you live a more logical investing life.
Conclusion
Diamond hands and paper hands are only meme names given to people who use logic or emotion in their investing. As I finish for today, I encourage you to think about who you get your investment advice from: is it from paper-handed people, or is it someone who’s in it for the long haul? You should remember that everyone has motives and you should keep that in mind during your research phase.
have any other questions about diamond and paper hands, please stop by the KogeFarm Telegram or Discord communities, where you’ll always find someone willing to help you out.
