What Is HODLing?
HODLing, from the word HODL, is a typographical error for the word HOLD. The term has become an increasingly popular slang within the crypto circles, especially among long-term Bitcoin investors. Today, the decade-old slang with an interesting history is even considered a Bitcoin investing strategy.
This post takes a deeper look at the term Hodling by analyzing its history and understanding how it works as an investment strategy. Here, we discuss reasons why you should consider holding cryptocurrencies and the risks of relying on the HODL strategy.
How Did HODL Come About?
Here is the context. Bitcoin stormed into 2013, trading for around $15. But by early December, its value had appreciated by more than 7300% to reach $1100. The Chinese Central Bank, however, banned the pioneer digital currency and warned third-party payment processors in the country against working with BTC exchanges. The ban resulted in Bitcoin’s first major price crash, with the Satoshi Nakamoto’s creation shedding more than 60% of its peak price and plunging below $439 in the two weeks that followed.
On the 18th of the same month, and in the midst of the freefall for BTC prices, a Bitcoin maximalist named “GameKyuubi” posted a typo-ridden opinion titled ‘I AM HODLING’ on the ‘Bitcoin Forum.’ This was a typo for “I AM HOLDING’, and he meant to point out that he was holding on to BTC despite the price crash, probably alluding to the age-old buy and hold strategy.
The term HODLing was quickly picked up by other users, and it quickly became a trend in the forum. Close to ten years later, the term HODL has been turned into an acronym to imply “Hold on for Dear Life”, to mean holding on to an investment regardless of its price action. It also doubles up as one of the most popular slangs for the buy-and-hold strategy, especially among Bitcoin maximalists and long-term crypto investors.
How Does HODLing Investment Strategy Work?
Hodling is the colloquial term for the Buy-and-Hold strategy. But while the slang may be relatively new, the investment strategy it alludes to isn’t. On the contrary, buying and holding is a time-tested investment strategy used for ages by investors in the stock markets. It refers to the art of buying Bitcoins and other cryptos at relatively low prices and holding on to them despite the price volatilities.
Note that buying and holding, or HODLing, starts with the belief that an asset will continue gaining value in the foreseeable future. Since it involves buying and holding on to a cryptocurrency for years, it only makes sense to invest in promising crypto projects. To only buy and hold resilient crypto assets whose value is more likely to continue rising in the foreseeable future.
To succeed as a HODLer, you need to embrace two key traits — patience and impeccable analysis skills. You need great analysis skills to poozle the market and find the most promising digital asset. If you have followed the crypto markets for some time, you then are aware of the extreme volatilities that regularly visit these crypto tokens. Patience comes in handy during periods of massive value dips when an asset’s value dips, and it seems like everyone else is abandoning ship.
Benefits of HODLing Cryptocurrencies?
Reap maximum value from a crypto
Long-term investing lets you reap maximally from a coin’s value gains. Here is an example: If you bought 1 BTC at the time the term HODLing came about for $500 and didn’t panic sell during 2014, 2018, and mid-2021 crypto market crashes, you would have been worth $68,000 in November 2021. This represents a 13600% value gain.
Works for inexperienced traders
HODLing is any inexperienced trader’s best friend. When buying and holding, you do not need to keep monitoring the market. It makes it possible for inexperienced crypto investors to make money without having to master the many and often complex trading strategies.
Doesn’t need substantial investment capital
Unlike short-term investing strategies like scalping and day trading, hodling does not require you to have a substantial capital investment.
Reduced risks of loss
In crypto investing, you only lose when you sell an asset while it trades below your entry price. Since HODLing does not involve active buying and selling, it exposes you to a reduced risk of loss compared to short-term investing. For example, assuming that Bitcoin just lost 20% of its value, a day trader will be forced to close that, effectively losing 20% of their capital. A holder, on the other hand, has the luxury of holding on to the investment until it recovers.
Less costly
Crypto exchanges charge you a transaction fee when you buy and sell through their platforms. Multiple trades at an expensive trading platform can, therefore, easily rack up your trading expenses, which ultimately affects your profitability. Hodling is, therefore, less costly to short-term trading as it does not involve active buying and selling. You also do not need to invest in expensive analytics and trading tools and bots when holding.
Risks of HODLing?
Not all crypto assets are profitable
There is no guarantee that HODLing will always result in outsized value gains. Not all the seemingly promising cryptocurrencies will mimic Bitcoin’s price action and have their values appreciated at unprecedented rates in the foreseeable future. Take the Cardano tokens, for instance; while they have been around for more than 5 years, they have reported a meager 2000% value gain.
The collapse of crypto projects
Even the most promising cryptocurrencies face the threat of sudden collapse, which may drown your entire portfolio. Such investments are often dealt a death blow by such things as rug pulls, unforgiving cyber-attacks, or even a faulty algorithm. Take, for instance, LUNA, which gained more than 14750% to reach $119 in April 2022 before losing 99.99% of this value between 5th and 12th May 2022 to trade around $0.00012.
Who Can Use the HODLing Strategy?
HODLing investing strategy is perfect for beginner investors with little to minimal crypto trading skills/experience. It is also great for general long-term investors, including busy expert traders who do not have enough free time to analyze the markets and monitor their trades.
