Whenever you try to type the word HODL, the automatic text checker is likely to correct this apparent typo in HOLD. But HODL is not a spelling mistake. HODL has become a popular buzzword in the crypto space and indicates keeping Bitcoin or other cryptocurrencies for as long as possible, ignoring market volatility.
The first use of the word HODL dates back to 2013 in the publication “I AM HODLING” on the Bitcointalk forum.
The author (GameKyuubi) complained about his bad trading skills and shared his intention to simply continue to keep his Bitcoin (which at the time was rapidly decreasing in price) without trying to predict the next market movement.
In the author’s opinion, HODLing is the best strategy for poor traders:
“Sell in a bear market only if you are a good day trader or an illusiond noob. People in the middle hold. In a zero-sum game like this, traders can only take your money if you sell.
Interestingly, the post was loaded with more typos and CAPSLOCK, which the author would later explain the influence of whiskey.
“I typed that tyitle twice because I knew it was wrong the first time. Still wrong. w/e.” “WHY AM I PIERCING? I’LL TELL YOU WHY- IT’S BECAUSE I’M A BAD TRADER AND I KNOW I’M A BAD TRADER. Yes, you good traders can spot the ups and downs pit pat piffy wing wong wang just like that and make a millino bucks sure no problem brother.”
Some comments following the post suggested that HODL could be decoded as “holding on for dear life.” The word funny went viral and immediately entered the cryptocurrency jargon. Today, HODL commonly refers to an investment method of buying and maintaining a coin, without paying attention to the coming and going market trends.
What Is HODLing?
The newly invented word quickly gained traction in the crypto community and eventually became a professional term used by cryptocurrency investors who choose to buy and never sell cryptocurrency assets, regardless of current market fluctuations.
Today, HODLing is one of the most widely used investment strategies in the crypto world where a person buys some virtual goods and refrains from selling the coin, even if the price plummets.
It is also among the safest approaches to investing in cryptocurrencies. When HODLing, a person is theoretically safe from momentary market hysteria when many people buy coins at a high price and sell them much cheaper later, since the price of the coins never returns to its all-time high.
HODLers (cryptocurrency users who choose HODL) remain invested because they believe that the currency of their choice will become more valuable over time and will bring substantial returns on investment one day.
HODLers continue to own their coins, without paying attention to exaggerated predictions of sharp price changes, fake news, and other scary content that often takes over the global crypto community. In this context, HODLers are not exposed to FOMO and FUD – the notoriously well-known profit-destructive trading behaviors:
- FOMO (fear of losing) is a negative feeling that pushes an investor to buy an aggressively touted asset at a high price, believing that its price will continue to rise;
- FUD (fear, uncertainty, doubt) – is a desperate reaction to a drastic drop in prices that has prompted an investor to hastily dispose of their assets (panic selling or SODLing).
What is the HODL strategy?
In modern cryptocurrency jargon, the “HODL” strategy describes a situation of buying virtual assets and keeping them in the crypto wallet for an extended period.
As part of this investment strategy, people do not panic when the price of the coin falls, but continue to hold their tokens, waiting for a more favorable time for the sale to come. In this way, investors expect to capitalize on the increase in the value of their asset in the future.
The HODL strategy is different from a short-term trading approach where investors buy an asset at a low price, wait for the price to rise, and then sell it before the price sags.
What are the advantages and disadvantages of HODLing?
The HODLing investment strategy has both advantages and disadvantages, and to decide if this method fits your investment goals, you should consider both sides of a matter.
- It does not require market timing. For a short-term trading strategy, it is crucial that an investor is able to feel the feelings of the market and guess when the price of the asset will rise or fall. For inexperienced traders – like most people – making accurate market forecasts is a difficult job, but HODLing saves them from the need to do any analysis or research.
- Reduced taxes. If you profit from an asset held for less than a year, you will pay a higher capital gains tax than the gains paid by taxes from long-term assets. The HODL strategy will result in lower tax bills.
- Decent initial investment. The HODLing strategy requires a person to have ample and sufficient start-up capital that will hypothetically bring large profits over the years. For investors with a low budget, building the first investment portfolio for HODLing can be a real challenge.
- Tied capital. The biggest disadvantage of HODLing is that capital remains idle, does not work and does not generate passive income – just wait for the right day to come. An investor remains tied to that asset for the long term and may not notice profitable investment opportunities that arise during this HODLing period. If the investment coin originally has no growth potential, maintaining it for years only means keeping unnecessary things. Investors should thoroughly research the market to buy and HODL a coin with a serious promise of appreciation.
- It takes time to reap benefits. HODLing is a strategy that takes a lot of time, but without a guaranteed result. The fact that you have kept the asset for a decade does not mean that you are subject to significant rewards for your expectation. A poorly chosen asset can also indicate the depreciation of the initial investment in the long run.
For a true HODL adherent, the best time for HODL is right now and never give up HODLing despite the dramatic volatility of the market.
The popularity of the HODLing method is fueled by widespread beliefs about the mainstream adoption of cryptocurrencies, the prevalence of electronic coins over traditional fiat, and a growing democracy of world governments towards Bitcoin and other altcoins.
But in reality, it is very difficult to predict the best time for HODLing due to childhood and loose regulation of the cryptocurrency industry.
Can You Hodl stock?
HODLing is a long-term investment strategy commonly applied to cryptocurrencies. However, this method is also popular among stock investors who buy and own securities for an extended period. In fact, in the stock market, the HODLing strategy can bring more tangible results than those in the cryptocurrency landscape because stock prices are less volatile and more predictable than cryptocurrencies.