Born from the virtual message of a drunk trader, the backronym HODL has become the official symbol of a passive investment strategy in the cryptocurrency market. In this article, we will tell you what HODL is and who are hodlers.
Hodl is a strategy for working with cryptocurrencies. Hodler crypto investors buy crypto and keep it for a long time, regardless of how the market changes. To make money, some hodlers “forget” about their deposits for several years.
What is HODL in cryptocurrency and its history
Hodl is a misspelled word for hold that has become famous and part of the slang.
The term hodl appeared by accident. In 2013, the Bitcointalk forum actively discussed the situation on the market. The price of bitcoin fell by 25% that day. Investors panicked and began to actively sell coins.
A user named GameKyuubi posted a post titled “I am Hodling”. The author lamented that he did not know how to quickly respond to market changes — to sell and buy a few seconds before a collapse or rise. Therefore, all that remains for him is to keep his bitcoins with him.
Typos in the post are explained simply — the author drank whiskey to relieve tension. And the meaning of the new term soon received an expanded version – Hold On for Dear Life. Another interpretation of the abbreviation, its interlinear translation is “to hold on to dear life.”
How to prepare for hodling
HODL, or long-term strategy, is a passive way of investing in the long term. Simply put, investors simply buy cryptocurrency, wait and benefit. However, there are some key elements that an investor should better understand before embarking on a HODL.
First, which cryptocurrencies to choose and how to build an investment portfolio.
Secondly, whether it will be a one-time investment or a periodic one. If periodic, then whether the investor will invest money at a certain time or take profits under special conditions, for example, if the desired currencies have risen sharply or have reached a threshold specified by the investor.
Thirdly, when to withdraw profit: upon reaching a certain time or a certain amount. Another alternative is to keep all capital in a cryptocurrency portfolio indefinitely.
Reasons for HODL in Cryptocurrency
Experts name a huge number of reasons to choose a passive HODL investment strategy. In particular, the strategy will work if you want to preserve and increase your assets in the simplest way, and also do not want to spend a lot of time on active investments.
In general, according to experts, people choose this strategy because hodling does not require much effort, and they have strong confidence that the price of the cryptocurrency will rise in real value for a long time.
In addition, HODL has become a philosophy that helps investors resist the constraint syndromes: FOMO (fear of missing out) and FUD (fear, uncertainty, and doubt) that arise from the volatility of the cryptocurrency market and hit impressionable investors, forcing them to sell their assets.
The main reason for the rise in the value of cryptocurrencies is the public interest in cryptocurrencies. More and more retail and institutional investors are investing in crypto assets. For example, hodlers who bought bitcoin in 2014 for $500 were able to sell it in June 2019 for $12,000 and made a profit of $11,500 over 5 years.
Pros and cons
One of the most important points noted by the adherents of this approach is the preservation of nerves. Hodl involves buying a coin, after which you should “forget” about it for several years and do not check the charts every day, as traders do. In such a case, no matter how the crypt goes, there is no need to panic. You just need to be patient and wait.
Another advantage is that when you go it is not necessary to improve your trading skills, which are important for short-term trading. Analysis of charts, search for the ideal entry point and other moments are not so critical. If the project is serious, the probability of fixing a profit at a distance of a couple of years is very high. What size of income will be, this is another question. But it is precisely because of this “simplicity” that many beginners will like this strategy to get into the crypto market.
As an additional bonus for hodlers, it is important to note “hard forks”. Over time, based on the algorithms of a certain coin, alternative blockchain branches appear, with which another cryptocurrency appears. Those who keep a specific coin on the necessary wallets receive another completely free of charge. One of the brightest examples is the BitcoinCash fork. Few people believed in him, but now the altcoin is in the top 5 by capitalization. And once the users did not pay a penny for receiving this asset.
In any strategy there are shortcomings. The key, in this case, is the possibility of losing the invested funds. Despite the fact that the statistics of the development of most serious cryptocurrencies confirm the maximum likelihood of price growth over the course of several years, for a number of reasons this may not happen.
In addition to hodling, there are other ways to make money on the crypt.
- Cryptocurrency farming. When tokens are credited as a reward for the fact that the coins were converted into cash or other coins. To farm, you need to have a liquidity pool — pairs of tokens in a ratio of 50 to 50. For example, DAI / ETH
- Staking is a system in which holders of certain cryptocurrencies are rewarded for holding crypto in their wallets. This is how they ensure the stable operation of the blockchain. The more you keep, the higher the reward. Staking works on the Proof of Stake (PoS) algorithm – proof of stake.
- Buying and selling collectible objects. With the help of NFT technology, you can create unique objects, which you can then collect, sell and receive a percentage of authorship. Such objects can be graphic works, videos, gifs, designer sneakers, music, avatars.
Cryptocurrencies are highly volatile assets. Their price can fluctuate more than 20% daily in either direction, and that’s fine. To make money on exchange rate fluctuations, you need to calculate the steps ahead.
If you have no experience in crypto investments, you can use the less risky hodl strategy. This is an opportunity to make a profit in the long run. Hodling can be compared to investing in jewelry or an expensive watch. They are simply stored in your safe and grow in value over the course of ten years.