Stockhodl Syndrome

The current breed of cryptocurrencies have an inherent flaw that will forever make them assets and not “currencies”, that makes “cryptocurrency” a misnomer.

I call this inherent flaw the “STOCKHODL” syndrome. Stockhodl syndrome is the fusion between “stockholm syndrome” and the old adage of trading, “buy low sell high”.

It begins when a person buys into a cryptocurrency with expectations of selling later when the value increases when they themselves seemingly have no interest in using the coin or token for its intended purpose. An unhealthy relationship ensures when the person is subjected to the elation of the highs and the doldrums of the lows. As ever more highs are achieved the person is less willing to sell, while the dips cause the person to hold tighter. Eventually the person loses sight on when to sell and keeps on chanting, “HO~DL! HO~DL!”.

Why is this an inherent flaw?

When designing something that should work as a currency it means using it as a medium-of-exchange. Then its purpose should be to act as an intermediary that changes hand often and is not really owned by anyone. Much like a river facilitates travel of ships and therefore goods, a good currency should have a certain liquidity that allows a healthy movement of goods (and services). But if everyone is just holding on to their currency it would be as if everyone was building dams to hold up tributaries that feed the river. With what little water is left in the river the reach of ships would decrease, also the depth of the water would pose problems and so ships would have to be smaller and carry less.

That is exactly what is currently happening to cryptocurrencies. A large portion of coins or tokens are being held or HODL (or should that be HEDL?). When so much is being held there is not enough liquidity to allow fluctuations in quantity. People get used to the low water levels and decide to build right up to the water line thinking its prime real estate. Then when someone sells a large quantity of coins/tokens it would be like opening a large dam without warning. The water gushes down, rapidly increasing the water level of the river and destroying anything built close to the water.

This problem is caused by the aforementioned “stockhodl syndrome”. Because the cryptocurrency is viewed as and treated as an asset, and there is as of yet no clear daily use for it, when someone buys any crypto the initial reason for the buy is so as to sell when its value increases.

This “stockhodl syndrome” is made even more severe due to various methods of rewarding those who hold and penalising those who spend. This incentive to make people hold is just so as to create a false sense of scarcity to raise the value, which in turn gives positive reinforcement to the “stockhodl syndrome”.

There are a few cryptocurrency exceptions that do have some sort of intrinsic value or do provide value. However, it’s not so far off to say that 99.9% of current cryptocurrencies are designed as assets, in other words, are designed for you to “hodl” them.

Crypto as assets is bad....

Cryptocurrencies behaving as assets or being treated as assets is bad for the cryptocurrency industry. Assets are subject to speculation and therefore price fluctuations. The Tulip mania was caused by an unhealthy appreciation (in all its meanings) of an asset class good, spawning rampant market speculation on futures of Tulips yet to be grown. In fact an economic bubble is also referred to as an asset bubble.

As far as I have researched traditional fiat currencies are not traditionally considered as assets, it is only when dealing with foreign exchanges that it seems to go into a grey area (or when used in accounting). If you live in the US you wouldn’t hold US dollars as an asset expecting to gain from its increase in value, but you may hold EUROs or some other foreign currency to hedge against a value change of the USD against a foreign currency.

So excluding such uses of fiat currencies in FX trading or accounting you can say that in a national/local perspective currencies are not assets and are not traded as such. A currency is a medium-of-exchange that you use to obtain equivalent value assets of whatever you are trading. Currency in a bank in form of savings that earn you interest can be considered as a financial product and thus an asset. But cash under you mattress gets you nothing.

Conclusion

So the sole purpose of a currency or money is to be used. A medium-of-exchange would then loose its purpose if it cannot be used as such. Which leads to the current use of cryptocurrencies. Cryptocurrencies will remain as assets unless a way to induce spending and discourage holding is implemented in its framework.

The value of the cryptocurrency should rest not in the unit of the currency but in the use of the currency, and as such all cryptocurrencies are failing that important criteria and are keeping its holders as hostage.