What Is a Bagholder?

Bagholders do not sell their assets — even if their prices drop to zero.

There are several potential reasons for this. The most simple is that the investor believes the potential long-term gain will outweigh any immediate losses. Alternatively, they may be laboring under the sunk cost fallacy.

Bagholders are also sometimes affected by the “disposition effect.” This refers to the practice of refusing to sell poorly performing assets but realizing gains in other assets very quickly. Perhaps most commonly though, bagholders may simply be too time-poor (or lack the interest or enthusiasm) to keep up with the performance of the assets they hold. This is likely to have become much more common as cryptocurrencies went increasingly mainstream.

News stories about price fluctuations are usually accompanied by huge spikes in crypto investment by people who have no previous experience in this asset class. Inevitably, many of these investors lose interest again over time — especially if their investment was not large.  

Bagholding does pay off in some cases. There have been many stories of first-time investors who bought Bitcoin many years ago, forgot about it, and then discovered that they were sitting on hundreds of thousands of dollars — and sometimes even millions. 

Bagholding is closely related to HODLing. The latter term has become more commonly used to refer to holding on to coins or tokens because the trader is not skilled or informed enough to adopt another strategy. HODL was coined following a misspelling by the user GameKyuubi on the BitcoinTalk forum, but it is now also used as an acronym for “Hold on for Dear Life.”

See also: Bag.