Buy and HODL: Why Dead Man’s Hand Beats Active Traders in the Crypto Market

Yet history shows that volatile bull runs often reward the investors who do the least. Behavioral finance offers a famous insight here.

A so-called “dead person” study by Fidelity, one of the largest asset managers in the world, found that the best-performing brokerage accounts over a ten-year span were ones where the owner was, ironically, inactive or even deceased.

In other words, doing nothing beats constant trading. The Fidelity data showed the highest returns came from forgotten accounts – owners who simply left their money invested and let compound growth take over.

The runner-up best returns, not surprisingly, were from people who had also forgotten they even owned the account.

That finding matches what we know about market psychology. In a volatile bull run, every day brings fresh headlines and whims.

News or speculation can drive prices up or down on a whim. But frequent trading tends to invite bad timing. As one industry observerput it, “because of our behavioral biases, we often find ourselves buying high and selling low.”

Humans are prone to panic-selling the dips or chasing after the latest spike. By contrast, the “dead person” investor doesnt watch the charts – they simply stay invested through ebbs and flows. Over long periods, that passive stance often trumps active timing.

The recent crypto rally is a real-world test of this buy-and-hold mindset. Those who held through the pain of last years bear market are finally reaping rewards.

Ethereums 20% leap came after months of doubts, and it wiped out massive, short positions in minutes. In the same rally, even smaller altcoins spiked double digits, lifting portfolios across the board.

By contrast, a trader who tried to pick tops and bottoms might have missed the move or reacted too late. Staying put was the simple crypto investing strategy that worked best this time around.

This isnt a fluke. Crypto history is full of big swings where patient holders win. For example, look back at Bitcoin and Ether cycles: prices often overshoot on the way up or down, only to continue moving towards the north in the long run.

Investors who “sell the news” or try to time the exact top usually underperform. Academic research has long warned that missing just a handful of the markets best days can slash returns.

In bull markets, the handful of biggest up-days often account for a huge fraction of a coins lifetime gains. By sitting it out, the faithful “HODLer” (a crypto slang for a buy-and-hold enthusiast) avoids the urge to jump ship at the worst time.

As one crypto pundit notes, if an asset grows fifty-fold over a decade, there is simply no need to trade it day to day – you just let compound gains run.

So, in this run-up, the key lesson for crypto investors is patience. The data suggest that the best strategy in a fast-moving bull market can be to do nothing. A report by my colleague Godfrey Benjamin in September, shows that 65% of crypto investors are HODLers.

History and behavioral studies line up on this: when markets roar ahead, the most successful accounts are often the ones of people who took a hands-off approach.

Its a counterintuitive insight, but a powerful one. As Ethereum and its peers rally, it seems the “buy and hold crypto” strategy is paying off for those who behaved like, well, dead men – at least in their trading accounts.