What is HODL?
HODL refers to a long-term strategy for investing in cryptocurrencies. An investor purchase and hold the cryptocurrency for an extended period ignoring complex price fluctuations in the cryptocurrency market and focusing on long-term price appreciation. Furthermore, it is also an acronym for “Hold on for Dear Life.”
Its propagation is linked to a famous typo that emerged in a post on a bitcoin forum called bitcointalk.org in 2013. The post was “I AM HODLING,” actually intending “I AM HOLDING.” It became a buzzword, and since then, the term has been widely used in the bitcoinBitcoinBitcoin is a digital currency that came into existence in January 2009, speculated to be created by Satoshi Nakamato, whose true identity is yet to be authenticated. It provides lower transaction fees than the traditional online payment systems, is controlled by the decentralized authority, and is not like government-issued currencies. and cryptocurrencyCryptocurrencyCryptocurrency refers to a technology that acts as a medium for facilitating the conduct of different financial transactions which are safe and secure. It is one of the tradable digital forms of money, allowing the person to send or receive the money from the other party without any help of the third party service. world to mention holding.
Table of contents
- HODL is a crypto lingo indicating the investment strategy of buying and holding an asset for an extended period to gain from its long-term price appreciation.
- For amateurs in the crypto market, holding assets for an extended period saves them from the complications of other strategies timing the market like day trading, swing trading, or high-frequency trading.
- The buy and hold strategy may possess the risk of not having a centralized agency of control and uncertainty in the future of cryptos. Moreover, it does not utilize the benefits of high volatile nature of cryptocurrency.
How Does HODL in Cryptocurrency Work?
HODL has been a famous slang word among investors in the blockchain community since 2013. Whenever the crypto value plunges to the bottom, the term “hodling” is used by many to indicate that they will hold on to the crypto purchases without selling it for a lengthy period riding the trajectory with the hope that price will appreciate significantly.
The hodling or holding strategy of making money by awaiting a longer period is opposite to the “time the market” concept where investors buy and sell short term. Market sentiments do not sway hodlers, and they don’t panic by hearing news that might affect the cryptocurrency value. However, they may buy more if the price drops. Furthermore, they usually avoid third-party services for safeguarding their assets. The hodling strategy is very similar to the buy and holds investing strategyInvesting StrategyInvestment strategies assist investors in determining where and how to invest based on their expected return, risk appetite, corpus amount, holding period, retirement age, industry of choice, and so on. used for stocks, and the term ‘hodl stock’ indicates not to sell the stocks influenced by frequent swings.
Cryptocurrencies such as bitcoin have been volatile in the short term, but the long-term trend indicates the value has increased. For example, The bitcoin valued below 10,000 USD in 2019 now revolves around a level above 40,000 USD in 2021. One can buy bitcoin and then wait for years then sell it for a profit. It’s not unheard of for people to double or even triple their invested amounts. Generally, people who are more patient and invest large sums of money are more likely to gain huge profits.
Is HODL Strategy Safe?
Numerous things add to the risk associated with the HODL strategy and cryptocurrency. Even though it attracts many fancy investors, it is still a new and highly volatile concept. The absence of a central authority to control the crypto operations, the absence of worldwide acceptance as a medium of exchange, and uncertainty in the future make it unsafe compared to strategies utilizing the frequent swings and other conventional investments. Hence holding for the long term may put investors in danger.
Using HODL has several benefits that make it ideal for amateurs to trust cryptocurrency investment. First, beginners only need to buy the cryptocurrency, which means investing and waiting for an extended period to gain long-term value appreciation. It is one of the simplest ways of trading bitcoin. In addition, it saves them from the risk of engaging in crypto day tradingDay TradingDay Trading refers to buying & selling securities/financial instruments within the same trading day to earn profit through margin loans. Day traders are also called speculators as they do a lot of guesswork in terms of securities. , swing trading, or high-frequency tradingHigh-frequency TradingHigh-Frequency Trading is a specific type of trading enabled by technology that makes transactions so fast that they take milliseconds..
Short-term investing strategies might make money faster but at the cost of a steep learning curve. Before attempting other complex strategies, one must learn all the different elements influencing cryptocurrency and technical information. By using the HODL method, one can still make money from cryptocurrency while slowly learning about the other aspects of trading.
The most significant disadvantage of HODL is the amount of time needed to make the profit that an investor desires. In addition, the holding strategy makes the investors miss the opportunities to benefit from short-term price fluctuations in the crypto market.
The time required depends on how much an investor aims to make in the first place. For example, if they are looking to make a profit of 2%, it will probably take a short time to reach this goal. However, the main point of involving oneself in bitcoin is taking advantage of the significant short-term changes in the value of bitcoin. Using HODL to double the deposit, for instance, is not uncommon. However, this might demand significantly more patience if the bitcoin value reduces considerably after buying it. The investor has to wait for an extended period locking his capital and experiencing too many swings. He should have enough capital capacity to stay away from selling low.
Frequently Asked Questions (FAQs)
The “Hold on for dear life” phrase or HODL meaning in the cryptocurrency world points to a passive investment strategy influencing investors not to sell the cryptocurrency until they benefit from long-term value appreciation of the digital currency. Instead, investors purchase the cryptocurrency and hold it for an extended period.
The strategy of holding for a long period helps the investors to escape from high volatile nature of the crypto market and not move with the market sentiment. They can avoid the hassle faced while timing the market when engaged in buying and selling in the short term. In the long-term, investors can collect cryptos building solid portfolios.
It is an investing method in which people buy cryptocurrencies and keep them for an extended time. It permits investors to profit from a rise in the asset’s value. The hodl token value may rise or fall; however, the investor should not be swayed by the price fluctuations.
This has been a guide to HODL in Cryptocurrency and its Meaning. Here we discuss how it works and is it safe to use HODL with its pros and cons. You can learn more from the following articles –