HODL: A Sound Crypto Investment Strategy?
A misspelled post title on the BitcoinTalk forum gave birth to the term ‘HODL’. But what is it? And is it relevant in 2020? Learn more.
Bitcoin, in its early days, was most commonly viewed as a convenient digital payment method rather than a lucrative investment opportunity. At one point all the way back in 2010, for instance, a BitcoinTalk forum member nicknamed ‘Laszlo’ exchanged 10,000 Bitcoin for two large pizzas. At the time, 10,000 BTC was worth no more than $40–50. If we take today’s exchange rate into consideration, however, that very same transaction is suddenly worth a staggering $75 million.
The Rise of ‘HODL’
Around the same time as the infamous pizza transaction, a small but sizeable portion of Bitcoin users realized that they could profit from rising crypto prices if they held onto their tokens indefinitely. They also believed that the asset class could cause major disruption in the years to come because of its technological potential. This resulted in the birth of a new trading strategy called ‘HODL’, a term that emerged from a misspelled post title on the BitcoinTalk forum.
Looking back, it’s easy to conclude that the HODL strategy has turned out to be overwhelmingly accurate (and profitable). Bitcoin — the world’s largest cryptocurrency — is now worth a whopping $8,660. For reference, it was worth a mere $1,000 at the start of 2017.
Almost no other asset, index, or financial product has delivered a similar triple and quadruple-digit returns within a single year. However, can the same explosive growth be expected for the future of the cryptocurrency market as well? In the following sections of this article, let’s take a look at the financial viability of buying and ‘holding’ crypto at the start of the new 2020 decade.
Should You ‘HODL’ Crypto in 2020 and Beyond?
While a lot has changed since the early days of Bitcoin, many continue to view crypto trading and investment as a profitable avenue. Even large institutions and professional investors subscribe to this theory, as is evident by the fact that many of them now have at least a small amount of crypto in their portfolios.
Volatility provides one of the biggest motivations to ‘hold’ crypto for a long period of time. Within a single day, the cryptocurrency market can rise or fall by as much as 30%. In contrast, even a 5% deviation in either direction is considered to be massive in traditional equity markets. Over a longer time frame though, holding will naturally allow you to profit from a general upward trend.
As the popular saying goes, time in the market always beats timing the market. Statistical analysis arrives at a similar conclusion. According to a chart published by Binance Research, the average daily returns of a long-term investor could drop by as much as 151% if they missed out on a mere 10 days worth of returns in the whole year.
However, while ‘HODLing’ crypto is far less risky than trading it on a semi-regular basis, there are still a multitude of factors that you need to keep track of. This is especially true for smaller digital currencies and tokens that may gain or lose valuation quickly in light of changing public sentiment and news. Like virtually any other asset class, crypto cannot be considered to be a completely safe investment, even in the long-term.
Alluva, a free token reward-based web app, addresses this problem by rewarding users that accurately predict the future prices of various cryptocurrencies. Predictions on the platform can be made for free, with no token purchase or investment involved, making it a completely risk-free alternative.
Conclusion
While Bitcoin’s price has been on a mostly upward trend since its inception back in 2009, there is no guarantee that it will continue to be this way, especially in the distant future. After all, past performance is no indicator of future returns. However, considering that the cryptocurrency market is still far from mainstream adoption, there could be significant price growth opportunities as well. Ultimately, crypto investments of any duration will only succeed and turn profitable if you enter early enough.
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