Editorial Disclosure: Cryptocurrency investors are advised to do their own independent research. The past performance of a cryptocurrency has no influence over its present or future performance. The opinions expressed in this article should not be taken as investment advice. You good traders must navigate the crypto space using your best judgment.
The term “HODLing” is crypto slang that has crossed over into public usage. People who HODL keep their cryptocurrency holdings for an extended period of time. The most famous HODLers are Bitcoin HODLers. They managed to resist the strong impulse to sell as their Bitcoin’s price plummeted and later increased by over 1,000%. Their self-control enabled them to amass great wealth over time and become the poster children for crypto HODLing.
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- The Origin of the Term HODLing
- Meaning of the Term HODL
- HODLing: A Buy and Hold Strategy
- Advantages and Disadvantages of HODLing
- Investment Advice for Crypto Investors
- Key Takeaways
The Origin of the Term HODLing
This term originated in December 2013 as Bitcoin holders on BitcoinTalk forum, an online Bitcoin (BTC) discussion forum. The forum members chatted about whether to dump their BTC while they could still get something for it. Their strong desire to dump BTC was becoming almost irresistible as they watched its price steadily decline.
During their forum chat, a very drunk forum member named GameKyubbi aggressively asserted, via keyboard, that he was a bad trader and he was going to HODL BTC. His strong position about holding BTC was communicated by typing out his statement in all capital letters. Of course, GameKyubbi intended to type “HOLD” and mistakenly typed “HODL.”
The other forum members were amused by his typo. They were so amused that they shared his text all over the Bitcoin community. Since that time, it has become legendary and part of everyday language.
Meaning of the Term HODL
After the term “HODL” became established in the digital currency community, it was given a meaning. HODLing means “Hold On For Dear Life.” In short, no matter what is happening in the notoriously volatile crypto market or how you feel about market events, don’t sell your crypto holdings.
The “dear life” part may seem overly dramatic, but the extremely volatile crypto market can overwhelm an investor. This is especially likely when the investor is caught in the grip of a bear market, and watching other crypto traders dump their holdings as they try to save their portfolios. So, holding on to a digital asset as its valuation plunges, you fear losing your initial investment, and growing panic seizes you – keeping that cryptocurrency in your portfolio may feel like you are holding on to it for dear life.
HODLing: A Buy and Hold Strategy
HODLing is not a new investment strategy. It has been practiced for decades with stocks. This buy and hold strategy dictates that you research the asset before purchasing it, and then only purchase assets that have a long-term profit potential or that you think are undervalued by the market and will rise in market valuation after there has been an asset price correction. This strategy is used for assets that the investors will hold for at least a year.
Advantages and Disadvantages of HODLing
There are many investment strategies that are lucrative for crypto traders. Although most crypto investors favor day trading and high frequency trading, there are others who prefer to invest long-term. They believe that by investing in promising crypto projects for the long-term and ignoring the daily volatility of the market, they can earn a nice profit on their crypto assets or watch them appreciate in value over time.
- Less stress and time involved in crypto trading
- Lower capital gains taxes
- Lower net transaction fees
- Less risk from short-term trading
- Deferred tax liability
- May result in significantly greater profits than short-term trading
- No need to constantly watch the crypto market to look for trading opportunities
- Stressful to maintain crypto holdings in bear markets
- Future crypto prices, regulation, and mass adoption uncertain
- Greater chance of loss of crypto via hacking, stolen passwords, and forgotten/lost passwords
- Crypto traders must keep cash available to liquidate their assets or forcibly sell the assets
- Crypto holdings’ prices may not recover/rebound
Investment Advice for Crypto Investors
Cryptocurrency is in its youth. It continues to develop and expand. Furthermore, as it is adopted by the masses, more regulated, and there is greater oversight of it, the prospects for investing in it will change.
The HODLing worked for legacy cryptocurrency (e.g., Bitcoin, Ether) holders. Holding Bitcoin in 2013 during its short term market decline proved to be a successful investing strategy for that cryptocurrency at that time. However, it may not be as successful when used with other cryptocurrencies.
The volatility of the crypto market means that there is inherent risk in trading it short-term and holding it long-term. Its lack of predictability and connection to real-world assets and events further complicates the situation. So, the crypto community must continue to look for proven ways to navigate this new investment opportunity.
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Cryptocurrency investors must understand the risks that come with short-term and long-term crypto trading. The volatility of the digital currencies means that they risk missing out on potential gains regardless whichever trading strategy they use.
Bitcoin and Ether holders have done extraordinarily well over time. However, the crypto community cannot assume that every new token/coin launched will be as successful as the legacy tokens.
Investors in digital currency, like those in stocks, must do their own research and make the best investment decisions for themselves.
Is HODLing better than day trading?
No, it is not better than day trading. The best trading strategy is the one that the trader can successfully use to profit from when trading or investing. Some traders are better at high frequency trading, day trading, or HODLing, but not all of them. Do what works for you.
Are there any low risk or risk-free cryptocurrencies?
There are no low risk or risk-free cryptocurrencies. All digital currencies carry the risk that they will fail and that their value will fall to zero. Even stablecoins are not as safe as crypto investors had hoped. TerraUSD is proof that stablecoins pegged to fiat currency and supposedly backed by reserves can fail.