How can Bitcoin holders identify the right time to sell or hold their investments?

Why Bitcoin Diamond Hands Should Rethink Selling: 2023 Market Insights vs. 2017 & 2021 Trends

Introduction: Diamond Hands in a Changing Bitcoin Market

Bitcoin “diamond hands” – long-term holders who refuse to sell – have been battle-tested through multiple boom-and-bust cycles. The 2017 retail mania, the explosive 2021 bull run, and the grinding 2022-2023 bear market each reshaped on-chain dynamics and investor behavior.

By 2023 and into early 2025, the structure of the Bitcoin market looks very different from previous cycles: more institutional adoption, deeper derivatives markets, spot ETFs in major jurisdictions, and more sophisticated on-chain analysis. These changes matter for anyone considering whether to sell or keep holding.

This article compares 2017 and 2021 to the 2023-2024 environment and explains why diamond hands may want to rethink selling too early.

1. Bitcoin Market Structure: 2017 vs. 2021 vs. 2023-2024

1.1 How the Market Has Matured

Bitcoin has shifted from a speculative niche asset into a macro-relevant instrument:

Key developments shaping the incentive to hold:

• Spot ETFs and institutional ramps
• US spot BTC ETFs (approved 2024) and similar products elsewhere drastically lower friction for traditional capital.
• ETF flows can create sustained baseline demand, not just episodic hype.

• More robust derivatives infrastructure
• Greater use of futures and options for hedging rather than pure speculation.
• Diamond hands can hedge downside with options instead of selling spot BTC outright.

• Regulatory transition from grey area to defined frameworks
• Clearer rules in the US, EU (MiCA), and parts of Asia reduce existential risk perceptions.
• Lower perceived tail risk supports longer holding periods.

1.2 On-Chain Ownership Is Stickier Than in Past Cycles

On-chain data (e.g., from Glassnode, CryptoQuant, etc.) shows:

• Growing long-term holder (LTH) supply – coins dormant >155 days consistently hit new highs after each bear market.
• Shrinking exchange balances – a large share of BTC left centralized exchanges between 2020 and 2024, moving to cold storage, custodians, and DeFi/LN channels.
• More “in-the-money” long-term holders – many long-term wallets accumulated heavily in 2022-2023, well below the 2021 peak.

This suggests structural conviction is higher today than in 2017 and more diversified than in 2021.

2. Why 2023-2024 Bitcoin Dynamics Favor Long-Term Holders

2.1 Post-Halving Supply Shock Meets ETF Demand

Bitcoin’s halving cycles have historically preceded major uptrends:

• Halvings: 2012, 2016, 2020, and the 2024 halving reducing block rewards from 6.25 to 3.125 BTC.
• Historically, demand staying constant while new supply halves has led to delayed but powerful price expansions.

In 2023-2024, this classic halving dynamic intersects with:

• Spot ETF net inflows accumulating BTC in cold storage.
• Corporations and funds using BTC as a long-term treasury or macro hedge.

For diamond hands, this combination means:

1. The marginal daily supply is smaller than in 2017 or early 2021.
2. Incremental institutional demand is now structurally easier to express via regulated products.

Selling during the early stages of such a regime could mean exiting just before the supply-demand imbalance accelerates.

2.2 Market Cycles Are Lengthening and Smoothing

2017’s parabolic run and crash were largely retail-driven. In 2021, the cycle was more complex: driven by stimulus liquidity, institutions, and then macro tightening.

In 2023-2024, several factors suggest:

• Less extreme but more sustained trends
• Institutional money tends to scale in and out rather than FOMO top-tick like retail.
• Multiple accumulation and distribution phases
• Sideways ranges with high derivatives activity can last months, shaking out weak hands.

This environment rewards:

• Patience over precision – timing exact tops is extremely difficult.
• Strategic selling – using profit-taking bands, not panic or short-term news.

3. Lessons from 2017 & 2021: When Selling Hurt Diamond Hands

3.1 Psychological Traps That Caused Premature Selling

Across 2017 and 2021, many long-term holders sold too early due to:

1. Anchoring to prior ATHs
• Selling “once we’re back at $20k” in 2020-2021 resulted in missing the run to $60k+.
• Overreacting to negative headlines
• China bans, exchange hacks, ETF rejections historically produced short-lived drawdowns.
• Misreading macro noise
• Fed hike scares in 2021-2022 caused capitulation near cycle lows.

Rethinking selling now means recognizing:

• Headlines often front-run, not reflect, major price extremes.
• The largest upside phases commonly occur after doubters have capitulated.

3.2 Data-Driven Perspective: Cycle Highs vs. Long-Term Value

While price targets are speculative, on-chain and historical data show:

• Long-term holders who rode out multiple cycles typically saw:
• 10x+ returns across several years, despite 60-80% drawdowns in between.
• The probability of long-term positive return historically increases with:
• Longer holding periods (4+ years)
• Buying in bear markets / accumulations zones rather than at parabolic peaks.

For diamond hands who accumulated in 2022-2023 bear conditions, selling solely based on short-term volatility may contradict the original thesis of multi-cycle exposure.

4. Smarter Alternatives to Selling Your Bitcoin Stack

Instead of selling core BTC holdings, diamond hands can consider:

4.1 Hedging and Yield Strategies

• Options-based hedging
• Buy protective puts to cap downside.
• Sell covered calls on a portion of holdings to earn premium (while capping upside on that slice).
• Low-risk yield via institutional platforms
• Use reputable, regulated custodial services offering BTC yield through transparent mechanisms (e.g., on-chain collateralized lending, not opaque rehypothecation).
• On-chain strategies (with caution)
• Bitcoin-backed stablecoin loans.
• Lightning Network or infrastructure participation (for advanced users).

4.2 Partial De-Risking with Rules, Not Emotions

Design a rule-based system instead of emotional selling:

1. Define profit bands
• Example: Sell 5-10% of the stack at each 2-3x from your cost basis.
• Use on-chain and macro signals
• Extreme funding rates, leveraged long/short ratios, and overheating indicators can justify trimming.
• Separate “never sell” core from “trading” allocation
• Core position: multiyear thesis, only sold for existential reasons.
• Satellite position: used for shorter-term trades or de-risking.

This keeps you in the market for potential multi-cycle upside while still respecting risk.

5. Bitcoin’s Role in a Web3 and Blockchain-Based Future

5.1 Beyond Price: BTC as a Settlement and Collateral Layer

The 2017 narrative was mostly “digital gold.” By 2023-2024, Bitcoin’s role in the broader web3 stack is expanding:

• Layer-2 networks and sidechains (e.g., Lightning, federated sidechains, emerging rollup-like constructions).
• BTC as pristine collateral in:
• Cross-chain DeFi.
• Institutional lending desks.
• Tokenized financial products.

As Bitcoin becomes a foundational settlement and collateral asset, selling entirely might be akin to exiting early from the base layer of the internet during the early broadband era.

5.2 Interoperability with Web3 and Multi-Chain Ecosystems

• Bridges, wrapped BTC, and new protocol designs align Bitcoin with:
• DeFi for yield and leverage (with smart risk management).
• NFT and Ordinals ecosystems leveraging Bitcoin’s security.
• Web3 applications using BTC as programmable money.

For long-term crypto natives, maintaining BTC exposure allows participation in:

• The macro digital asset thesis (store of value, inflation hedge narrative).
• The micro web3 thesis (composability, programmable financial primitives).

Conclusion: Rethinking Selling in a Structurally Stronger Bitcoin Era

Compared to 2017 and 2021, the 2023-2024 Bitcoin landscape features:

• Stronger institutional rails (spot ETFs, clearer regulation).
• More resilient long-term holder bases and reduced exchange supply.
• A fresh halving-driven supply squeeze coinciding with easier mainstream access.
• Deeper integration of BTC into web3, DeFi, and L2 ecosystems.

For Bitcoin diamond hands, this doesn’t mean “never sell.” It means:

• Avoid impulsive exits driven by short-term volatility or scary headlines.
• Use data, macro context, and halving cycles to frame decisions.
• Consider hedging, partial profit-taking, and separating a core “never sell” stack from a tactical allocation.

In a structurally more mature and integrated Bitcoin market, rethinking when and how you sell may be as important as the original decision to buy.