The term HODL is extensively used in the crypto community, which stands for “hold-on-for-dear-life,” to indicate a strategy of investing in cryptocurrencies over the long term. It implements the logic of GameKyuubi’s original post, which suggested new traders would do better if they held onto their coins instead of trying to predict the market.
What Is HODL? How and When to HODL to Win Big in Crypto
HODLing goes beyond just a method of avoiding FUD (fear, uncertainty, doubt), FOMO (fear of missing out), and similar emotions that undermine profits for cryptocurrency maximalists.
HODLers invest in cryptocurrencies with the belief that cryptocurrencies will replace fiat currencies in the future. When that happens, the value of fiat money will be meaningless to crypto investors.
How “HODL” Came To Be
The term “HODL” originally appeared in a post on the Bitcoin Forum—a forum for investors to discuss the crypto economy and bitcoin. In the forums on December 18, 2013, a user, GameKyuubi, posted a message saying, “I’M HODLING.”
The year 2013 was a big one for Bitcoin. The price of one bitcoin rose from $15 in January to over $1,100 in December, a return of 7,230%. However, in mid-December, the price dropped by 39% to $438 due to volatility.
According to analysts, the fall was caused by a ban imposed by China’s Central Bank on third-party payment companies, who could then not transact through Bitcoin exchanges. The “I’M HODLING” post was in reaction to the price drop.
Since then, HODLing has become an investment strategy that has bearings on how do you sell bitcoin, short, or buy it on the crypto exchanges.
Not only that, but the misspelled phrase “HODL” spread quickly throughout the Bitcoin forum and other cryptocurrency forums. Now, cryptocurrency investors use it to refer to holding assets for a long time instead of frantic day trading.
As of the end of 2017, the price of Bitcoin had risen to a record high of $19,167. Nonetheless, the price fell again after the 2017 surge, then increased during the COVID-19 pandemic and reached an all-time high of more than $58,000 in early 2021.
Cryptocurrencies: Why you should HODL them
Blockchain-based cryptocurrency can be described as a digital currency. You can hold investments or assets in the form of a cryptocurrency. For instance, Bitcoin, Ripple, and Ethereum all fall under this category. Cryptocurrencies pave the way for decentralization in banking and transactions since the currencies are not controlled by a central authority, such as a central bank.
As a result of the events in 2017 and 2020, cryptocurrencies continue to garner more attention as an investment opportunity. Cryptocurrencies attract many customers by highlighting their advantage of financial decentralization and currency digitalization. Investors also hold cryptocurrencies as a value reserve during a low-interest environment post-COVID.
“HODLing” refers to the buy-and-hold strategy. An investor who holds an asset for an extended period will profit from its long-term appreciation. On the other hand, traders are highly active in transactions and are interested in making profits by purchasing and selling at lower prices.
Cryptocurrencies are highly volatile, allowing traders to build long-term and short-term positions. Hodling, on the other hand, may provide investors with more excellent safety because they are not subject to short-term fluctuations and may avoid the risk of short-term losses.
How effective is HODLing as an Investment Strategy?
Cryptocurrencies seem risky when viewed in the context of short-term fluctuations. When you step back, however, as hodlers do, you can see that Bitcoin’s long-term growth is intermittent rather than continuous.
The key to hodling is to be patient, according to Fundstrat’s Research Head, Thomas Lee, who recommends hodling Bitcoins. Those who hold bitcoin, including Thomas Lee, maintain an optimistic and bullish view that the prices will follow some pattern eventually. Despite losing almost half of its value during the outbreak of COVID-19, bitcoin is expected to rise again based on its past trends.
A faction called the maximalists goes beyond usual HODLing. They are devout supporters of both cryptocurrency and the thinking behind it.
Those who believe in cryptocurrencies believe they are set to replace fiat currencies (currencies issued by governments) and will lay the foundation for all monetary systems in the future.
Maximalists, therefore, do not care about cryptocurrency exchange rates, and HODLing is the only option.
Reasons People HODL Crypto
There are several reasons why people use the HODL strategy in crypto investments:
Gains over the long run
In the history of top cryptocurrencies, there has been long-term profitability. Anyone who acquired BTC or SOL at the beginning of their development is now reaping tremendous rewards. Investors hold on to tokens for at least a year for long-term gains. They may even advise you to hold on to the funds until you need them for specific purposes, which are more important than HODLing.
HODLing Crypto to Combat Inflation
The inflation-averse investors are becoming more interested in cryptocurrencies. Many investors see cryptocurrencies’ potential as inflation-proofing.
Compared with many FIAT currency alternatives, HODLing cryptocurrencies could result in a much more stable value. In this sense, HODLing crypto is a good option, especially Bitcoin, whose supply is limited and has a known inflation schedule that progressively reduces over time.
Transfer of wealth across generations
HODLing cryptocurrencies is a way to become wealthy as assets are passed on from one generation to the next.
Almost half of the millionaires surveyed by CNBC hold 25 percent or more of their assets in digital currencies. These findings indicate that crypto creates a generational gap in wealth creation, allowing younger investors to earn enormous fortunes from the rise in Ethereum, Bitcoin, or any other digital currency.
HODLing cryptocurrency is a strategy that has benefitted those who subscribe to it. HODLers don’t panic, sell and play the long game. Cryptocurrency investments, in general, are risky since they are highly volatile. Over the long run, however, HODLing is more profitable than risky trading.