In crypto, a bagholder is a term used to describe an investor who holds onto a depreciating asset long after its value has plummeted, often to zero.
This isn’t just about losing money; it is a specific failure to exit a position during a shift in market regime. Becoming a bagholder usually follows a predictable cycle.
The cycle usually begins with a “pump”. During this time, the capitalisation of a project goes up to levels that don’t align with actual utility.
As the “dump” begins, the asset breaks through key psychological support levels. While savvy traders exit, the future bagholder stays. They are somehow convinced that a recovery will happen, and they refuse to lock in unrealized losses, going from an active investor to an “involuntary long-term holder.”
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In the brutal reality of the ecosystem, bagholders serve a functional purpose for larger players. They provide exit liquidity. For a whale or an early seed investor to realize profits, they need buyers on the other side of the trade.
By holding through the distribution phase, bagholders allow smart money to offload positions at higher prices. The bagholder will essentially hold “bags” of worthless tokens. Understanding this dynamic is the difference between navigating a cycle and being consumed by it.