What Is a Bag Holder?
A bag holder is an investor who refuses to sell their assets, even if the prices drop significantly, sometimes even to zero.
There are various reasons why someone may become a bag holder.
One reason is the belief that the potential long-term gains will outweigh the immediate losses.
Another factor could be the influence of the sunk cost fallacy, where investors hold onto assets in the hope of recovering their initial investment.
The Disposition Effect and Bag Holders
The “disposition effect” may also affect bag holders, which involves holding onto poorly performing assets while quickly realizing gains from other assets.
Some bag holders may also lack the time, interest, or expertise to actively manage their investments, particularly as cryptocurrencies gain mainstream popularity.
It is common to see news stories about price fluctuations accompanied by a surge in crypto investments from inexperienced individuals.
However, many of these investors eventually lose interest, especially if their investment is not substantial.
Long-Term Crypto Investments
While bag-holding can lead to losses, it pays off in some instances.
There have been numerous stories of first-time investors who purchased Bitcoin years ago, forgot about it, and later discovered they were sitting on significant wealth, sometimes in the hundreds of thousands or even millions of dollars.
Bag holding is closely related to “HODLING” a term commonly used to describe holding onto coins or tokens due to a lack of skill or knowledge to adopt other investment strategies.