How to Become a Smart HODLer in Cryptocurrency?
By Nagaya Technologies on The Capital
Yes, you read that right. HODL is a term in the Crypto world for Hold On for Dear Life.
Since the arrival of Bitcoin back in 2008, Cryptocurrency is starting to appear as a lucrative option for investors. In the year 2017, the top Cryptocurrency Performer Ripple recorded a whopping 28,963% return compared to the top-performing stock Zimbabwe at 117.7% (cointelegraph article here).
With the increased demand and interest, more and more companies flock into this industry to offer their platform to potential investors.
Now, there are great coins and companies out there that are here to stay and revolutionize the future, but there’s going to be more of them that just won’t last long. That’s just how the market works.
“90% of Token Startups will Fail”
Vitalik Buterin, co-founder of Ethereum
In this article, we’ll dig deeper into the characteristics of Cryptocurrencies that are good to keep long-term. But before that, let us explore why is it a good choice for you to HODL.
Why HODL?
HODL is a term used within the Cryptocurrency Investing sphere that means Hold On for Dear Life. It started as a joke, a typo in the bitcointalk.com forum. But the members found it amusing that they started using it to denote HOLDING one’s Cryptocurrency long term as compared to selling it.
At the end of 2017, Bitcoin price was set at a record high at $19.891 per Bitcoin. This price brought a lot of cheer for investors and stream of optimism for people putting their money in the virtual currency.
But just a few months before that, they were trading at just a shy of $6000. Going further down, before February 23, 2017, Bitcoin has experienced 2 Downward spiral periods. After they hit their record-high price, they stayed stable at $6000 — $8000.
On the contrary, if you would have put your money on Bitcoin in 2013, you would’ve been up by somewhere close to 24.900% in 2018.
We can look at the chart below.
What is this telling us? The Cryptocurrency Market is highly volatile in the short run, but the right cryptocurrency can be very profitable in the long run. And for that reason, investors are better off spotting a good coin and HODLing as compared to swing or day-trading.
How to spot a great coin and HODL? By expanding our horizons about the Cryptocurrency industry. Here are 7 aspects to look at before putting in your money into any Cryptocurrency.
1. Business Concept
As an Investor, it is imperative to understand the Story behind the Technology.
Now technologically, anyone can claim to have made “The next bitcoin” or “The next big thing.” But let’s face it; how many tech start-ups you know which looked like “the next big thing” eventually failed in the market? And why does it happen?
Simple; Making a Cryptocurrency valuable in the market doesn’t just require technical knowledge, but also the understanding of how the market operates.
Before you put your money into any Cryptocurrency, check out their White Paper. Look at who they are, what’s their story, what kind of challenges they are tackling, what solution has they prepared…
But most importantly, ask yourself if the concept makes sense to you.
There’s an old age saying in Marketing which states, if you can’t convince people, confuse them.
If they speak more about their technology as compared to their Business Concept, that’s a red flag. Remember, you are not merely investing in technology, but in a Business that can make you more money in the future.
Technology should complement the Business Concept, not replace it.
2. Team Profile
Few years ago, a Cryptocurrency company emerged with a vision to revolutionize the gaming industry with Blockchain technology.
The founders are prominent figures in the gaming development industry, with their partners being vital key players in the country’s Blockchain Industry, Startups, and Multinational Companies.
Lured by the beautiful promise and the figures involved in the company, people rush in to buy the coin. Where are they today?
Here are 2 other examples of a similar story:
Not everyone who succeeds in other kinds of Businesses will succeed leading a Cryptocurrency company.
Before investing, ask yourself, What’s the reputation of the leaders like? Are there any negative reviews about them in the past? Why?
If the people involved within the company have ever run Scams / Money Games before, chances are they’ll do it again.
3. Use-case
Although this factor isn’t everything, you can also dig deep into how their platform is performing.
Marius Kramer, the №1 Cryptocurrency Writer on Quora, mentioned there are 6 basic criteria that all good Cryptocurrency has. Some of them are:
- Scalability- How many transactions are they able to solve per second?
- Decentralization- How is their voting distributed? (In this, refer to what is Proof of Work, Proof of Stake & Delegated Proof of Stake)
- Energy usage
- Instant transactions- How long is a transaction processed and confirmed?
- Permissionlessness and trustlessness- Permissionless means that there is no 3rd party making rules on how to vote, thus giving permission. Trustlessness means that nodes do not need to trust each other in order to participate in the voting.
- Transaction Fees
Common sense also plays an important part here. Ask yourself, Does the technology make sense and are applicable in real life? (E.g. You can’t expect a Cryptocurrency to be used as a means for Payment when the laws of the country strictly prohibit them to do so.)
4. Exclusivity
We know what happened to Venezuela.
A country that was once deemed one of the richest in South America is facing a 10 Million Percent annual inflation per august 2019. This was largely due to poor economic decisions made by the country, doubled down by the sharp downfall of the oil prices from 2013 to 2016.
To pay off the country’s debt, which was mounting up close to $108 Billion, the Venezuelan government did exactly what other countries did in a similar situation in the past; Print More Money.
When too much currency floods the market, the value of the money drops. This means, the price of the product remains, but the purchasing power of the currency has reduced.
This is different from Cryptocurrencies.
Each Cryptocurrency is created scarce, which means there’s only a finite amount of it that will ever be there. This is what will give its intrinsic value.
Check how much of the tokens/coins are available, how much have circulated in the market, what’s their Market Capitalization and what’s their traction over time.
5. Where will they be 15 years from now?
Tim Draper recently said that he only invests in things that will still be around 15 years from now. This comes from a guy who accurately predicted the Bitcoin $10K price 3 years before it happened.
I love how BountyBase puts it:
Ask yourself, do you think the world will somehow improve or be for the better because of this product?
If it does, give it a test.
6. Risk Management
In its essence, a Cryptocurrency is nothing more than Digital Numbers, and their value is determined by Market Perception.
To be more than just a Digital Number, they need Physical Assets. NOT Digital Assets or claim of a Large Community.
In economics, we call this term Hedging. They are an investment to reduce the risk of an adverse price movement in an asset.
In most cryptocurrencies, including Bitcoin, their movements rely solely on demand and supply.
The question we got to ask is, what will ensure the value of the Cryptocurrency won’t eventually get reduced to nothing? What if Transaction of Cryptocurrencies can’t be carried out due to some reasons or the other?
Even the most valuable Cryptocurrency would lose its value if the market can’t buy/sell them.
It’s back to being what it is, Digital Numbers.
So before putting in your money, figure out their risk management strategy. The common practice today for Hedging are Physical Assets, including Gold, Silver, Properties or Physical Businesses.
7. Transparency
Within the Cryptocurrency industry, it is very easy to trick the eye.
You may have seen companies claiming to have 50% of their coins sold out within 2 hours in their ICO.
Really? Or are they just claiming that to create hype?
Ask yourself how transparent they are when it comes to disclosing information about their company. Some pointers are:
- Where’s the company registered?
- How much of the coins are available and have been sold?
- How much Physical Assets are available?
- Where are the Assets stored?
- How often is their account audited by Independent Auditors?
- Documentations?
Now some will claim that Even Bitcoin didn’t have any physical assets, offices or notable figure.
As much as that’s true, let’s be real. Bitcoin was the first Cryptocurrency, more like the Celebrity among the lot. How many of these companies will turn up like Bitcoin and have as much Market Cap as they have today?
Remember, our goal is to buy and HODL for Long-Term, and Transparency is a very important factor in building trust.
Cryptocurrencies are becoming more and more popular.
As much as there are a lot of reasons to be optimistic about the future, not all roads lead to Rome when it comes to Investments. Do your research and dig deep into the projects before investing. Because once we make the right choice, we may be looking at one of the most powerful investment tools for decades to come.
Hold On for Dear Life!
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