HODL is an outdated investing paradigm, stop buying Bitcoin prayers. Part I
The rich don't HODL. They generate cash flow that buys more cash flow. You should be doing that too.
This is the traditional investing paradigm:
Work a job to get money.
Use that money to buy assets like stocks, precious metals, and bonds.
Continue accumulating them until you eventually get old and need to retire.
Slowly sell off your assets to fund your retirements, being flexible to how much you sell off to withstand market shocks.
At best, your birth, career, and retirement align well to the market and you are successfully able to retire with this method.
At worst, you get old or sick at the worst time and have to sell significantly below potential (although typically not at a “loss” in terms of cost basis).
This model does work at a high level. Dividends compound growth and dollar cost averaging across the decades time scale is highly productive across a variety of historical time periods. The Trinity Study being the most famous study to show this.
Long story short, even the unluckiest schmucks that get hit by the Great Depression and/or 70-80s energy crises & stagflation in simulations could safely withdraw 4% of their retirement annually and survive 30 years without going bankrupt (>90% of simulations).
The ideal investing paradigm would be:
Get money however you get it ( 9-5, hustles, flips, whatever).
accumulate assets, both those that grow intrinsically (e.g. stocks) but also assets that generate immediately usable cash flow (e.g. owning a laundromat).
Maintain liquidity across your assets for emergency and discretionary spending so you can enjoy life pre-retirement too. (e.g. selling off stock dividends to get cash without paying penalties because tax-preferred accounts are inherently distortionary lol).
Assets buy more assets generating increasingly usable cash flow.
Retire and sell off funds / assets only as needed or when effort/cash-flow ratio stops being useful to you.
The problem is, 99%+ of those in the crypto assets space are using the traditional investing paradigm. They simply sprinkle some Bitcoin, Ethereum, or other into their portfolio and wait to retire and sell.
This introduces a very difficult situation for our HODLers:
They underestimate the volatility of the asset and the pressure they’ll experience from the news cycle.
They expose themselves to higher variance in their net worth which causes stress.
They bring the incorrect framing of mature, regulated investments to a highly immature and unregulated investment category.
When traditional finance markets have a bad news cycle and regulators are concerned about panic selling behavior- they simply turn off the market! It’s called a circuit breaker.
Crypto assets don’t have that. They don’t have central bank quantitative easing regimes that incentivize everything bubbles. They don’t have distortionary tax deferral and widespread passive investing that distorts market information flow and ensures a constant stream of buying pressure at any price.
The market is speculative. Nobody knows how buy and sell pressure will change. And small changes in those pressures combined with multiple errant news cycles lead to large changes in market dynamics.
I truly think all these memes about diamond hands are screwing over the average person who cannot be expected to tolerate 30-70% swings in their asset prices.
So what’s the answer? Generating cashflow while holding only as much volatility as you can handle.
I’m running out of space that fits into an email, so look out for part II where I’ll cover:
Stablecoins & Lending
Liquidity Pools & Swap Fees
Generating cash flow with near 0 volatility risk (but non-negligible systemic risk).
The practical mechanics of engaging in this space
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