Is it just that the risk-averse were initially drawn to btc as a speculative vehicle? Or is it a matter of principle to hold forever?
I'm not holding bitcoins as a matter of principle. I have a number in mind, and if I hit it I will have enough money to retire at 35. At that point I plan to sell ~90% of my bitcoins.
I could sell some now, and make a significant amount of money. But I already have plenty of money saved; a little more isn't going to change my life. For my bitcoin investment it's FU money or bust, and any amount I sell now just lowers the chances that I'll ever get to FU money.
I got involved with btc when it was in the single digits, the crowd was very different then - cryptoanarchists. So your call to "diversify your investments" sounds to me much more like "diversify your politics", which is obviously a silly thing to tell somebody - especially somebody whose politics is any anarcho flavor. While I can only speak for myself, I do think this is true for many others: I was already living pretty comfortably and a few million isn't enough of appreciably change one's quality of life as a software developer.
It is, as most political differences are rooted in mutually exclusive ideas. If you are advocating for simply being open to considering alternative positions and measuring them against your own present position - then I agree with you, that is nice. But I would describe that as "diversify your politics", I'd describe that as being intellectually honest.
That's the idea.
However, you have to understand that if say SNAP stocks made someone rich, then diversifying makes sense, but if you got rich by some investment in some company Cayman Islands (but with a real business model), then you wouldn't just bring back the money or part of it purely for the sake of diversification.
In other words, diversification away from bitcoin isn't in the same boat as diversifying away from real estate or some stock.
From your friend's perspective, if they sell $100K worth of bitcoin, then is it possible that they might end getting on the radar of the govt and could be on hook for more than $100K?
In addition to that, bitcoiners also believe that bitcoin hasn't reached it's peak, so when it reaches it's peak, they wouldn't have to sell their bitcoins (because every business would accept bitcoin). You don't even have to go to 'every business' part. Even if half of the businesses accept bitcoin, then they don't need to sell their bitcoins.
Finally, if your nouveaux rich friends expect a Venezuala style situation, then, holding it further is the rational choice from their perspective.
You really have to be on the radar if you plan on reasonably enjoying that kind of wealth. There are plenty of legit ways of minimizing the tax burden of that kind of investment.
Calling the top and bottom is a fools game. Diversification simply helps protect an entire asset class/sector from ruining you.
I am merely trying to explain to whomsoever wants to know why these people won't sell their crypto even to diversification, please don't start yelling at me.
When I explain the logic of hedging and mitigating risk and locking in gains, he was insistent that the right strategy is to hold because it's going to go up some more, and he doesn't need the money now for any of his current objectives.
Come to think of it, I should at least consider that he's making it up, but I've met him several time and he's well versed in crypto and way ahead of the curve in learning about this stuff. Who knows?
If you poll people after a presidential election, a higher percentage of people claim to have voted for the winning candidate than voted for the winning candidate.
It's a lot easier to be well-versed in crypto and claim you won some big bets, than it is to be well-versed in crypto and actually have won enough big bets to "comfortably retire". The former requires hindsight, and the latter requires immense luck and timing.
None of the few people I know with BTC are especially well-versed in it.
There was a reply to this, now deleted:
> this is a pretty common (and self-destructive) phenomenon amongst unsophisticated investors
On the contrary, it's much more common for unsophisticated investors to sell their winners too early.
Dumb money is more emotional. Dumb money is risk averse and can't tolerate losses, so holds on to losers forever. Dumb money harvests winners after a 50% or 100% gain and reinvests in losers.
Smart money is coldly rational instead of emotional. Smart money isn't afraid of small losses. Smart money sells losers quickly and takes many small losses. Smart money holds one or two winners for a long time for 1000% and 10000% gains.
I'm sure some long-term bitcoin holders are ideological, but most are coldly rational smart money.
Dumb money invests emotionally without comprehending why a thing is traded for other things.