Table of Contents:
- The history of HODL
- Understanding the HODL strategy
- Pros and cons of the HODL strategy
- When should you HODL?
- Advantages of HODL
- What are HODL coins?
- Crypto terms to know
- The bottom line
If you’re an investor who has yet to venture into the world of cryptocurrency, you’re not alone. Although it’s been around since 2009, it’s been in the background for many investors. We’ve heard of it but don’t really know what it is or how it works.
Crypto is a peer-to-peer digital payment system that doesn’t rely on banks and mainstream financial institutions. Instead, it can only be used online and is stored in digital wallets. Its name came from the fact that it uses encryption to verify transactions between wallets and in public ledgers.
Proponents of crypto gather in online forums such as Bitcointalk, which was introduced by bitcoin creator Satoshi Nakamoto (a pseudonym), who has grown the community to discuss all things crypto. It’s been a place where many important developments for the industry have started, and new terms have been founded.
One of those terms is HODL, meaning “hold on for dear life,” which has become popular among the crypto community. If you’re investing in crypto, you’ll want to learn and understand the meaning of HODL and several other terms.
- HODL comes from a crypto investor misspelling the word “hold” and has become a popular saying among investors. HODL stands for “hold on for dear life” and describes a buy-and-hold strategy.
- Buy and hold has a proven track record in the stock market, and crypto users hope it will be a beneficial strategy for them as well. Still, with no track record to show, it’s a wait-and-see approach.
- Cryptocurrencies HODL approach, like all investing, has pros and cons, which each investor should consider before investing.
The history of HODL
The way the term HODL originated was apparently due to the typo of the word “hold,” and it didn’t take long for the community to attach the acronym “hold on for dear life.”
The story started when bitcoin user GameKyuubi was upset that bitcoin had fallen significantly. In caps, he started his post: “I AM HODLING,” and went on a bit of a rant expressing his frustrations about his lack of trading skills and his inability to spot fluctuations in the market. He also admitted to drinking some whiskey, which may explain the misspellings and the rant itself.
In no time at all, “HODL” became a meme referencing the movie Braveheart and others, as more traders embraced it and passed it on. The “hold on for dear life” acronym refers to holding onto digital assets despite market movements with expectations that they will show gains.
Since the term became popular, it’s been used by the community to encourage others to stay strong, even when things in the crypto world are volatile.
Understanding the HODL strategy
What’s HODL in crypto? Crypto is known to be a highly volatile market and has significant highs and lows, so investing in it takes a high-risk tolerance.
The HODL strategy is a popular way for those who have a fear of missing out (FOMO) and those who experience fear, uncertainty, and doubt (FUD) or other emotional triggers in investing to slow down and not make rash decisions. Instead, they hold on through the highs and lows.
The HODL strategy with crypto isn’t about timing the market to sell once it dips; it’s about taking advantage of the increasing value over time.
Pros and cons of the HODL strategy
All investing has both benefits and risks, and cryptocurrency isn’t any different. Although it has grown in popularity, it’s still considered uncharted territory and can be highly volatile.
Without a regulated agency to watch over operations and the fact that it’s not an internationally accepted medium of monetary exchange, it can be unsafe as investors can’t be certain that their investment will grow in value. Despite this, there are pros and cons to be aware of when utilizing the HODL strategy while investing in cryptocurrency, including:
Pros of cryptocurrency
- It doesn’t rely on market timing.
HODL strategy is about holding assets over the long term, which means that cryptocurrency investors don’t have to be concerned about timing the market to profit. That’s good news because it’s not easy to time the market under even the best circumstances and requires expertise and a talent for predicting shifts in the market that most of us don’t possess.
- It highlights a buy-and-hold mindset.
Financial experts agree that a buy-and-hold strategy is more profitable over the long term, and that’s still the case for cryptocurrencies such as bitcoin.
- It may reduce capital gains tax.
To reduce capital gains, an asset must be held for longer than 1 year, so holding for at least 1 year or longer will result in a lower tax rate on any earning.
Cons of cryptocurrency
- There aren’t any proven records.
Crypto is still relatively new, we can’t look back over time and see how it has performed. Although the buy-and-hold strategy may be effective when investing in stocks, we don’t have the historical records to understand if it’s a profitable strategy for crypto over the long term.
- It may not be beneficial for tying up capital.
When we invest our money in stocks for long periods of time, we can increase the value of that money through compound interest. Unfortunately, there isn’t any way to know if that will be the case with cryptocurrency. So while money is tied up in the unknown of crypto, it could be earning in a diversified portfolio of stocks, bonds, exchange traded funds (ETFs), and mutual funds.
Can you HODL stocks?
So, what does HODL mean in stocks? Although the term was coined in the crypto community, HODL is a buy-and-hold strategy represented in all investing areas, including stocks. Many investors understand that prices rise and fall over time, and reacting emotionally to those fluctuations doesn’t move you closer to your goals and can derail them just as quickly.
That’s where a strategy can be beneficial. You put blinders on, ignore the chatter that stirs up the emotions of fear and regret, and stick with the plan. It can be difficult to do, but the rollercoaster can be even more difficult if you don’t have a tolerance for risk.
When should you HODL?
There are no definite rules for holding and selling crypto, and the decision is up to each investor, depending on their goals. Since there’s little evidence to show how crypto prices may be affected by world news and events, choosing to buy and hold crypto has uncertain outcomes and may or may not produce profits.
No matter what you invest in, adopting the HODL strategy and buying diversified investments can be a good overall strategy. If one type of investment dips, others may be doing well, decreasing the losses.
Just as with stocks, bonds, mutual funds, and ETFs, investing in crypto is risky, so it’s important to pay attention to the market and do your research before investing.
Advantages of HODL
When deciding whether or not HODLing is right for you, considerations should be made based on your own individual goals. Generally, a buy-and-hold strategy is a beneficial approach. Here are a few reasons it may work for you.
- It’s a hands-off way to invest.
When you buy and hold, you don’t have to worry about the market’s volatility and watch for every movement that occurs and try to perfectly time selling.
- It makes for easy decision making.
By distancing yourself from the cycle of fear and uncertainty of those who attempt to time the market, you can take a step back and watch and evaluate to make more rational decisions about your investments and goals.
- It allows time to work in your favor.
When it comes to investing, time can be a beneficial tool. If the market dips, it has an opportunity to bounce back and may offer better returns if given some time.
- It can change your mindset about investing.
When you’re not always trying to time the market to sell, you can change how you look at investing, make better long-term decisions, and implement strategies that work with your investment risk tolerance rather than forcing decisions too quickly.
What are HODL coins?
One of the first forms of cryptocurrency was created in 2009 and called bitcoin, and it was the first digital form of payment to use blockchain technology. This type of technology enables peer-to-peer lending without the use of financial institutions such as banks.
Blockchain is a digital public ledger where transactions are kept along with their own unique identifier called a hash. However, bitcoin isn’t the only type of cryptocurrency, as more and more are becoming available.
Crypto terms to know
If you stumble into a crypto forum, you’ll most likely hear some unfamiliar terms. Like most industries, the crypto world has a language all its own, and to gain an understanding of that world, you’ll want to know the language. We’ve already covered HODL, so here are a few others:
- FUD – stands for fear, uncertainty, and doubt and describes investors’ sentiment during volatile market fluctuations.
- Rekt – another way of saying “wrecked,” which refers to when an investor has traded poorly or lost coins or tokens.
- Whale – refers to a big-time bitcoin investor who holds a significant amount of bitcoin.
- Stacking sats or Sats – describes accumulating bitcoin in small increments by earning, mining, or buying. It refers to the smallest fraction of bitcoin.
- To the moon – is when the price of bitcoin increases over a short-term period in an upward trend.
The bottom line
HODL, or hold on for dear life, may seem like a new term thanks to the popularity of its use in the crypto community, but it’s been a long-term strategy in investing that allows you time to make intelligent investment decisions without getting overly emotional.