When stock prices or crypto prices go up, holders rejoice and anticipate big rewards when they finally cash in. But as these coins continue to go up in value, you may see some posts making fun of those who gave up and had “paper hands”.

What does it mean to have “paper hands” in the crypto community, and why does it have negative connotations? Keep reading to learn more about this slang term’s meaning and its connection with risk tolerance for crypto investments.

What Does The Term Paper Hands Mean?

Simply put, a person with paper hands is someone who sells something too early. Whether it’s stock picks on the stock market or digital assets on the blockchain, someone with paper hands is a person who is risk-averse.

This aversion to risk is what makes a person with paper hands nervous at the first sign of trouble. Even if there’s no confirmation of negative rumors, they don’t have the high-risk tolerance of seasoned investors and may dump all their stock at the smallest sign of a dip.

This can cause many paper-handers to lose out on big opportunities just because they’re spooked by market swings. There are many paper-hand traders who’ve sold profitable coins like Bitcoin and ETH just when they were gearing for a massive spike in prices. It’s considered by the cryptocurrency community as a weakness because of the volatility that stocks and crypto trading inherently have.

Where Did The Term Come From?

“Paper hands” is a term popularized in the Reddit subreddit (a.k.a. interest community or subgroup) r/WallStreetBets. It became prominent in 2021 after the subreddit promoted investment in “meme stocks” like AMC.

The term was later adopted by the crypto community to describe similar investors who sell at the smallest sign of risk. If you see the toilet paper roll emoji followed by the open hands emoji on a forum, it means that someone has paper hands. 

Why Do Paper Hand Investors Lose Money?

To paper-hand traders, any potential gain they could have made from an unexpected rise is worth losing. This is because they’d rather miss out on big profits than lose any of their invested capital. For example, fellow traders might buy a stock that’s gone down by 5% in price because it’s become more affordable to own. When it goes up in value, they can sell it for a profit.

To a Johnny Paper Hands holding that stock that’s gone down in value, they’ll sell immediately, even if the 5% dip was temporary. Only time and market conditions will tell if their decision was correct. However, paper hand investors may lose money long-term because of their quick exit from their market position.

Plus, both crypto and stock transactions have fees, and these can add up. Because a Johnny Paper Hands will create more transactions from all the buying and selling, they may end up losing more money.

Having Diamond Hands Doesn’t Guarantee Success

The opposite of having paper hands or weak hands is the term “diamond hands”. “Diamond hands” is used by the cryptocurrency community to describe a person who has a strong appetite for risk. Even if there are big changes to a coin or stock’s prices, an investor with diamond hands will hold on to their assets.

They’ll sell at an opportune time, when they’ve seen a sufficiently large rise in value that they deem worth the risk tolerance. This willingness to hold their nerve and gain from a long-term position is praised by both the stock and cryptocurrency community.

While the phrase diamond hands and diamond emojis have been used positively on social media sites, this doesn’t make diamond hand investors smarter or richer than other investors. In fact, an investor with diamond hands may face a big loss for being too stubborn to let go of a stock that’s rapidly dipping in price.

These Terms Have Been Used To Goad Investors Into Bad Positions

Crypto investors need to be aware that “paper hands” and “diamond hands” have both been used to encourage people to invest in a volatile market. Those who are moonboys and blindly believe that a token will continue to rise in value will use these terms heavily. They’ll praise those who stick with a project as investors with diamond hands, while insulting critics as people with weak or paper hands. 

Moonboys will do this despite any news that there are problems with their chosen NFT project or token. That’s why it’s important to ignore the labels of having diamond or paper hand positions – simply buy or sell depending on the information available.

In Conclusion

While it’s common to see “paper hand investors” used as an insult, there’s nothing wrong with selling early to reduce losses. Crypto investors should do their own research about a crypto token or project before deciding to sell and make an exit. While there’s always the potential for massive profits, there’s also the possibility of huge dips or scams.