What does it mean to ‘HODL’? How does it help crypto investors? Is it a good investment strategy?

What does it mean to HODL?

Chiefly, crypto investors quickly retrofit HODL as an acronym for “hold on for dear life”, an encouragement to other crypto investors not to sell when prices fall.

As with many crypto memes, the origin of HODL can reportedly be traced back to a typo.  

Learning popular terminology is also crucial to understanding the cryptocurrency asset class as a whole, which has coined – no pun intended – its own set of commonly used words, such as “HODL.”

It all started when one user named GameKyuubi made a post on the crypto forum Bitcointalk in December 2013 with the title “I AM HODLING”.

GameKyuubi had explained in the post that he planned to “hold” his Bitcoin (BTC) investments because he knew he was a bad trader.

In no time, the term HODL spread like wildfire throughout the crypto world.

Today, it refers to the investors who refuse to sell their crypto regardless of how high or low prices trade.

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The Approach of HODL

Actually, the meme acknowledges novice crypto investors that they are not skilled enough to profit from short-term trades amid the notoriously volatile crypto market.

The HODL approach has been rewarding for long-term investors in Bitcoin, Ethereum(ETH), and other leading cryptocurrencies, as it has helped them navigate extreme fluctuations in the crypto market.

HODL is more of a mentality than an investing strategy.

To HODL is an acknowledgment that while a lot of money can be made trading short-term volatility, a lot of money can also be easily lost.

The HODL community encourages other investors not to cash out of their crypto when prices rise. And not to throw in the towel when crypto prices fall.

Since Bitcoin was designed to be the ultimate money, most of the daily volatility is just the noise that comes from the most free market in the world responding to events in real time.

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HODL and Bitcoin

There is no question that the HODL strategy has paid off for GameKyuubi and other Bitcoin investors. They have held onto their crypto investments.

But Bitcoin gains do not come without years of “HODLING”, through stomach-turning losses.

Bitcoin’s extreme volatility has produced a handful of horrendous annual returns throughout the years.

Further, ignoring short-term market fluctuations and focusing on the long-term outlook is not a strategy that is unique to the crypto world.

Value investors like billionaire Berkshire Hathaway CEO Warren Buffett also ignore short-term market volatility and focus on the long-term picture.

The “Oracle of Omaha”, famously encouraged investors never to own a stock for 10 minutes that they would not be comfortable holding for 10 years.

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HODL Strategy

However, the difference between long-term value investing and long-term HODLING is the difficulty in accurately valuing cryptocurrencies.

Value investors rely on fundamental metrics like price-to-book (P/B),price-to-earnings(P/E), and price-to-sales(P/S) ratios to estimate the intrinsic value of a stock.

Bitcoin does not generate cash flow, revenue, or earnings, and it is not backed by assets. Which creates intrinsic value, making it difficult to predict its appropriate long-term value.

HODLING is a good approach to Bitcoin investing if you believe in its long-term prospects and are prepared for some volatility along the way.

The same can not be said for all other cryptos, however, as most of them will likely go to zero.

Oce popular altcoins like OneCoin, BitConnect, and TerraUSD are just three examples of cryptos that failed, generating a near-complete loss for any investors who employed the HODL strategy.

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Is HODLING a Good Investment Strategy?

Is HODLing the right approach for you? Trading digital currency is risky and the price can fluctuate significantly. On the other hand, the buy-and-hold strategy is widely considered to be a sound investing approach.

When deciding whether to HODL consider your own investment strategy and goals, as well as your risk tolerance.

HODL may not be the right approach for every crypto investor and every crypto. It can be difficult for even professional traders to time short-term trades.

And then, there are psychological biases that negatively impact investor’s decision-making.

Even billionaire investor Ray Dalio said he was wrong about 66% of the time he personally disagreed with the “buy and sell” decisions of his hedge fund’s automated quantitative investing process.

Above all, the investor sentiment cycle is a visual representation of the emotions a typical investor experiences based on the performance of the investor’s portfolio over time.

When a stock or crypto’s price is at its lowest point, you typically experience fear, anger, and panic that can lead you to sell at the worst possible time.

Likewise, when a stock or crypto price is at its highest, you feel excited or overconfident, prompting you to buy at the worst possible time.

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How HODL Investing Can Work?

Jason Porter, senior investment manager at Scottish Heritage SG, says the HODL strategy can be particularly useful for crypto investors during market weakness, such as 2022’s crypto winter.

HODL can be employed, particularly when the market is declining, to assist investors in avoiding the urge to sell in a panic.

Basically, HODL can help you control the emotions associated with the fear of missing out, commonly known as FOMO, and fear, uncertainty, and doubt, or FUD. Especially, if you are a new investor it is crucial for you.

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The HODL Coin

This HODL mindset inspired the creation of the HODL token in May 2021.

HODL claims it is the highest-paying reward token on the Binance Smart Chain Network(BSC).

A 10% tax is applied to each HODL transaction, and the tax is automatically liquified and converted to BNB. That BNB is then transferred to a reward pool and is distributed every seven days to investors who hold HODL, tokens in their wallets.

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What is the HODL Mindset?

Chiefly, HODL culture has been a major help to long-term investors in Bitcoin and other top cryptos.

However, critics point out that the mindset only works if the value of cryptos continues to trend higher over the long term.

Bitcoin has only been around since 2009, giving it a limited long-term track record compared with other stocks, bonds, real estate, and other assets,

Others have argued that the stubbornness and close-mindedness of HODL culture are “cult-like”, blinding the community to any legitimate criticisms of Bitcoin as an investment or a currency.

Still, if Bitcoin bulls are correct and BTC eventually becomes the World’s universal digital currency and preferred long-term store of value, long-term HODL’ers will benefit. HODL remains relevant a decade later in 2023.

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When to HODL?

The best time to HODL is now, always and forever. A true believer would always hold on to their tokens, even if markets crash or become extremely volatile.

HODLing becomes an ideological belief about the long-term prospects of blockchain technology, cryptos, and the communities that have formed around them.

Can You HODL Stocks?

While HODLing is generally associated with crypto investors, the buy-and-hold investing strategy that it represents is not limited to crypto investing.

Many stock investors “HODL” their investments for long periods of time, although stock prices are almost always less volatile than the prices of crypto assets.

Actually, investors in stocks who buy and hold can benefit from long-term price appreciation while experiencing much less price volatility than is associated with cryptocurrencies.

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What is the Difference between HODL and a Buy-and-Hold Strategy?

There is no difference. You can HODL a stock through its volatility because you believe in the company’s future success.

Similarly, you can hold a cryptocurrency for an indefinite length of time, through multiple price changes, because you believe that the coin will do well in the future.

HODL Day – The Official Hodl Holiday

December 18 is HODL Day.

It is the official celebration of HODL as an ode to the date of GameKuubi’s Bitcoin talk post on December 18.

Thanks to GameKuubi, hodlers around the world who lack technical skills for short-term trades gather to celebrate his message and trading strategy on December 18 for HODL Day.

Pros of HODL Strategy

It does not rely on market timing.

This strategy is about holding assets over the long term. This means that you do not have to be concerned about timing the market.

That’s a piece of good news because it is not easy to do this, even harder under the best circumstances.

Timing the market requires expertise and a talent for predicting shifts in the market that most regular traders do not possess.

It’s a hands-off investment strategy

When you buy and hold, you do not have to worry about market volatility or watch for every movement in the market to time your sales.

It can help you build discipline as an Investor.

Avoiding the urge to give in to fear, uncertainty, and doubt (FUD) is one of the hardest barriers to overcome. HODLing forces you to think about the long-term benefits of your strategy.

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Cons of HODLing

It does not have a track record

Crypto is still relatively new, so we can not look back over time and see how the HODL strategy has performed.

Although buy-and-hold may be an effective approach when it comes to investing in stocks, we still do not know if it works for digital assets.

It ties up Cash that could be invested elsewhere

When you HODL, you give up the chance to invest that money in a diversified portfolio of stocks, bonds, exchange-traded funds (ETFs), and mutual funds.

That means that you are missing an opportunity for potential gains in those markets.

It involves investing in a risky asset.

New investors often ask; Is cryptocurrency safe?

Crypto is a highly volatile asset whose value fluctuates significantly. HODLing can help you wait out those fluctuations, but there is no guarantee that the asset will increase in value.

When to use the HODL Strategy?

When the markets are unstable, HODLing can be a strategy to consider.

While it is still unclear if HODLing will pay off for crypto investments, it is historically been a go-to approach for stock traders who want to invest in a bear market.

The goal of HODLing is to wait out recessions and other dips in the market, with the goal of cashing out when the market improves.

It requires a long time horizon, so it’s usually best for investors who do not need access to their cash for a long time.

If you are looking to cash out quickly, HODLing may not be the right approach for you.

Dollar Cost Averaging

Many new investors will start out HODLing by using a dollar cost-average strategy.

This means that you buy a set amount every day, week, or month which allows you to buy in at the average price throughout your investment period.

Public’s Recurring Investing feature can help you use this strategy by automating your crypto investments.

Some of you may choose to invest in ETFs like Bitcoin ETFs that use futures contracts vs. investing directly in a digital currency.

In an attempt to track digital assets’ performance over time ETFs let you buy into a fund that attempts to track the performance of a digital currency over time, instead of investing directly.

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What are the Alternatives to HODLING?

It is not the only investing strategy. Some crypto investors /traders choose to use other approaches.

Like SPEDN or BUIDL. While the misspelled terms are send-offs of HODL, these strategies are completely different in their approach.

Both SPEDN and BUILDL involve using crypto instead of holding it. Traders who use the SPEDN strategy believe in spending crypto in order to encourage real-world adoption.

This approach believes that popularizing digital currencies can help raise their value.

While the SPEDN strategy involves buying real-world goods with cryptos, BUILDL traders use their crypto to build blockchain applications.

The idea behind this strategy is to encourage users to contribute to the development of cryptocurrency infrastructure, which will ideally raise the value of digital currencies.

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Conclusion

Is HODLing for you?

There are no definite rules for buying and selling crypto. You should make a decision based on your goals and risk tolerance. If you are uncertain about your ability to play the market or want a long-term investing strategy HODLing may be for you.

You may already be HODLing. Stock market investors often use the buy-and-hold approach for long-term investments, which is effectively the same as HODLing.

HODLers is a social brunch as their strategy relies on support from other investors, who urge them along and convince them not to sell if they are feeling unsure.

Since the term originated on the internet, there is no single correct pronunciation. Some people say HODL like “hold”, while others say “he fell” or “hod dell”.

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