Key Takeaways
- Holding crypto aligns with long-term growth and tax advantages.
- Flipping suits those comfortable with higher risk, frequent trading, and a greater tax liability.
- The best approach depends on personal goals, discipline, and emotional comfort.
- Combining both (core hold + small trading position) can work for many investors.
In the fast-moving world of cryptocurrency, investors face an age-old question with a modern twist: Should you hold or flip? The right answer depends less on market timing and more on your personal goals, emotional tolerance, and time commitment.
While holding crypto for the long haul can offer potential growth and favorable tax treatment, active traders may chase quick profits by responding to short-term price swings. This guide unpacks the pros, cons, and practical considerations of each approach—helping you identify which path aligns best with your investing personality.
What It Means To ‘HODL’
The term “HODL”—originally a misspelling of “hold”—has become an acronym that now stands for “hold on for dear life.” For crypto believers, this philosophy reflects long-term ownership. Holding involves buying and keeping digital assets through market volatility, with the hope that innovation and adoption will drive future value.
“Long-term holding is investing in an asset class that you believe will perform well over the long term, five years plus,” explained Lawrence Sprung, CFP, who is a wealth advisor and the founder of Mitlin Financial. “You will look to maintain the position as long as you can and may even add to it as it increases in value, or if it pulls back, you may add additional money towards the investment to lower your average cost.”
Long-term investing can help smooth out market volatility and allow time for potential compounding returns to work in an investor’s favor. Holding may also reduce the emotional strain of reacting to short-term market moves that can lead to costly mistakes.
What It Means To ‘Flip’
“Flipping”—or active trading—means buying and selling to profit from short-term price changes. But, quick profits come with heightened risks and demands for constant attention.
“Flipping and active trading are more like gambling,” Sprung said. “You are taking a position … and looking for short-term gain. Once that is achieved, you will look to sell. Should the investment decrease in value in the short term, you may look to sell the investment and limit your downside risk.”
Trading can be exciting—but it also requires discipline, technical know-how, and time. The crypto market’s volatility may expose active traders to steep losses.
Pros and Cons of Holding vs. Flipping
Each approach offers trade-offs in effort, emotion, and potential reward.
- Holding: Lower stress and number of active trades, but requires a longer time horizon as well as patience and conviction through market downturns.
- Flipping: Potential for faster gains, but may result in higher taxes and emotional swings during market downturns.
Max Avery, CBDO and principal of Digital Ascension Group, which specializes in digital assets for high net worth individuals and families, explains one simple reason why long-term holds may be more beneficial: “Long-term holds can have the benefit of long-term capital gains [tax] instead of short-term capital gains [tax]…. ”
For tax purposes, the IRS classifies crypto and digital assets as property, not currency. This means that any income realized from the sale of crypto is taxable. However, the amount of time you hold a crypto asset before selling will determine the amount of taxes you’ll owe on the sale, if you earn a net profit.
According to Coinbase Learn, crypto held for more than a year generally qualifies for long-term capital gains rates at both the federal and state level (if applicable)—typically 0%, 15%, or 20% depending on your income bracket. These lower rates can offer meaningful tax advantages for patient investors, but it’s worth noting that higher-income investors may also owe an additional 3.8% Net Investment Income Tax on their gains.
By contrast, crypto sold in under a year is taxed as short-term capital gains, meaning it’s treated the same as regular income, which is often taxed at a higher rate. In other words, time in the market can directly influence not only your potential returns, but also your tax bill.
How To Know Which Strategy Fits You
Before deciding, ask yourself:
- What is my risk tolerance?
- Do I check crypto prices multiple times a day?
- Can I stomach seeing my portfolio drop 30% overnight without panic-selling?
- How much time can I realistically devote to tracking markets?
- Can I afford to pay short-term capital gains tax rates?
Your answers can reveal whether you’re better suited for a buy-and-hold strategy or the active, fast-paced nature of trading. It’s important to emphasize aligning investment choices with your emotional comfort level and time horizon—two factors that could dictate your long-term financial success.
Combining Approaches
For many investors, the best strategy may lie somewhere in between. A hybrid method involves holding a core position for long-term growth while setting aside a smaller portion for short-term trades.
“Those torn between holding and trading need to ask themselves if they have what it takes to trade this type of investment,” highlighted Sprung. “If the answer is yes and they want to have the best of both worlds, they can buy a position in crypto to hold long-term while having another position that they will use to trade [in the short term].”
Taking a balanced approach based on your goals, risk tolerance, and temperament can help balance potential upside from active trading with the stability of long-term compounding.
Managing Expectations and Risk
Whether you hold or flip, diversification remains essential. Fidelity Investments emphasizes spreading investments across stocks, bonds, and other investments to avoid overexposure and to mitigate risk.
Including other types of investments in your portfolio, such as crypto and digital assets, can be a key diversification strategy. Staying disciplined, setting clear exit points, and keeping a portion of your portfolio in cash or stablecoins can also help cushion volatility.
What’s the Difference Between Holding and Trading Crypto?
Holding (or “HODLing”) means buying crypto and keeping it long-term based on confidence in its future value. Active trading, or “flipping,” focuses on short-term price moves to capture quicker gains.
Is Holding Safer Than Flipping?
Holding may involve less stress and fewer active trades, and could lead to incremental gains in the long-term. On the other hand, short-term trading can result in significant wins but also major losses. Whether one is “safer” than the other depends on your time horizon, goals, and risk tolerance.
How Do Taxes Differ for Long-Term vs. Short-Term Crypto Gains?
Crypto profits are taxed as capital gains. Assets held over a year usually qualify for lower long-term rates, while those sold sooner are taxed at higher short-term rates.
The Bottom Line
There’s no one-size-fits-all answer to crypto investing. Holding and flipping each come with unique rewards and challenges. The best approach depends on your goals, temperament, and time horizon. Whether you’re building long-term wealth or chasing short-term opportunities, success comes from understanding yourself as much as understanding the market.
