For many new investors in the crypto market, there is a lot of jargon that might confuse dear life during the learning process. While some terms may appear alien to crypto novices, it is important to understand them, especially before starting your trading and investment journey.
Whether you use crypto to transact, shop online, or play at the best crypto casino, you must learn vital crypto concepts to help you to maximise your portfolio. One such term in the crypto arena is HODL.
Definition Of HODL
HODL is cryptocurrency slang for the word “hold.” It is misspelt and acts as an acronym for “Hold on for dear life.” It refers to an investor holding onto their investment for extended periods, especially in high volatility.
HODL is intended to encourage investors not to impulsively sell their investments at first sight of trouble. It is especially necessary as cryptocurrencies can be prone to dramatic drops and unexpected gains.
A person who wants to HODL engages in hodling, the process of HODL. When learning about cryptocurrencies, you will encounter this term more frequently, so it’s essential to understand the dynamics behind it.
Dynamics Of The HODL Technique
One of the main reasons investors choose HODL as an effective strategy is that they believe in the underlying technology and use case behind it.
Most cryptocurrencies are developed with blockchain technology, which has many uses to suit everyone. Investors believe that cryptos like Bitcoin will become the future of financial transactions, eventually replacing fiat currencies like the Euro and US Dollar.
With such a strong belief in this future financial transition, investors feel confident that any volatility in the crypto market is temporary. They feel assured that their investments will continue to grow long-term.
Hodling is an intriguing prospect for investors who always recall Bitcoin’s rise to fame. It was initially priced at under a Dollar and now racks up tens of thousands in value on the market. Despite the fluctuations in the crypto market, investors only need to glance back in time to reaffirm their beliefs about future gains.
Seasoned investors also believe that the value of cryptocurrencies improves when other investors buy without rushing to sell for quick profits. In this sense, Hodling attempts to eliminate a crypto concept called FUD – fear, uncertainty, and doubt – that is usually evident with novice investors who panic when market swings occur.
With the exponential rise of crypto investors in 2021, FUD has become more common. Crypto prices that reached record highs in April have since dropped to record lows in June and have since corrected themselves to respectable in-between values.
Top Hodling Questions Answered
Where Did HODL Originate?
For ages, the word “hold” has been bandied in the finance industry when financiers talk about buy-and-hold strategies.
With this method, investors buy a financial asset and hold on to it indefinitely. This is done with the intention that investors must not be influenced by short-term movements in the market but should adopt a long-term view of their investments.
The word HODL stems from a post made on a cryptocurrency forum called Bitcointalk in 2013. A decision by the Chinese government caused the price of Bitcoin to fall dramatically within 24 hours.
In response, a user detailed his bad investment luck but expressed a desire to continue holding onto his crypto assets in the future. The post was entitled “I am HODLING”. This phrase soon became viral amongst the crypto community.
The term found its way onto social media and memes and was used as a clear signal by investors who desired to hold on to their crypto assets for dear life.
It has since become an official trading term and is used by investors to indicate their willingness to hold on to their crypto assets.
Is Hodling Worth It?
One of the main reasons HODL has become such a popular term is the inherent volatility of cryptocurrency prices.
All cryptocurrencies, including the more stable ones like Bitcoin and Ethereum, experience frequent market swings that leave investors with conflicting emotions about their investments. HODL can effectively combat these volatile market swings by remaining consistent in your beliefs that the market will correct itself.
Investors who engage in hodling do not sell at first sight of danger but choose to stay on the path with a view on the long-term.
Typically, investors who HODL tend not to focus their attention on day-to-day crypto market movements and believe in the long-term sustainability of their crypto assets.
Considering historical patterns of crypto markets, it can be said that hodling is worth it if you have invested for long-term gains.
Is Hodling An Effective Crypto Investment Strategy?
The secret to an excellent hodling strategy is faith in future crypto markets. Many crypto investors do not doubt that cryptocurrencies will eventually be classified as mainstream currencies at some stage.
While such a favourable time is still to arrive, investors must remain on course and not make rash decisions in periods of volatility.
The potential for cryptocurrencies to enjoy six-figure values under mainstream currency fuels their unwavering beliefs. Because of this, many investors choose not to risk losing their crypto investments for short-term trading gratification.
As you may have gathered, for hodling to be successful, a large portion of the crypto community must comply and accept this strategy. Only through a mass buy-in from fellow investors will HODL be successful and help protect the investments of the crypto community.
In the case of Bitcoin, many traders believe that its limited supply and increasing demand from newer investors will mean that BTC’s price continues to rise. Additionally, more financial institutions will recognise it as a store of value and subsequently open up more commercial avenues for its use.
The general word within the crypto community is that inexperienced investors are likely to make losses on short-term trading as they have little experience interpreting vital signals and reading data correctly.
That said, hodling is the safest way for them to mitigate losses. By waiting until those investments become profitable as the value of cryptocurrencies increases, they will get to grips with the general nuances of the crypto market better and continue to use HODL strategies in the future.
Is It Better To HODL Or Trade Cryptos?
Investors who HODL are not particularly fond of short-term trading, although it has the potential to rake in massive profits quickly.
While that may be the case, short-term trading does have its drawbacks. Evaluating each strategy will give you more insight and help you make the best decision.
With hodling, you will hold your cryptocurrencies for prolonged periods. It is a solid strategy for all investors, especially those still learning the ropes of the crypto market.
When choosing to HODL in market swings where many investors are selling, you can avoid surprises thrown your way due to wild corrections that typically precede price gains.
Hodling is relatively simple, requiring no mental effort – perfect for novice investors. Moreover, it can prevent you from incurring damaging losses in periods of uncertainty and may help you to realise long-term profits.
You must remember that hodling can potentially result in massive losses if prices go against your expectations. The critical element is that hodling only works when the price rises, as you cannot profit from price drops.
In terms of trading for short-term profit, users typically buy and sell cryptos as they see fit. Unlike long-term investors who wait years to see their profit materialise, short-term trading offers almost instant gratification. CFD trading, for example, allows traders to profit from both price rises and drops, making it easy to earn profits no matter how the market behaves.
With that in mind, traders must possess incredible skill and risk management knowledge to succeed. Trading enables users to benefit from profitable price actions whenever they occur. Therefore, they have quick access to profit.
It is, however, a much riskier proposition than hodling as you need to be highly skilful to understand various market signals.
Common Crypto Investor Mistakes
Hodling is considered a safe strategy as it helps investors avoid making two fundamental mistakes that can lead to devastating losses.
Fear of Missing Out (FOMO) is the first mistake, which unconsciously influences investors to buy when a cryptocurrency is high.
The second mistake is Fear, Uncertainty, and Doubt (FUD) coaxes investors to sell their cryptocurrency when the value is low.
As mentioned earlier, seasoned crypto investors believe with certainty that cryptocurrencies will be regarded as mainstream currencies in the future and thus become incredibly valuable. With these thoughts in their minds, converting their crypto to fiat currencies is simply not an option.
To avoid these two common mistakes, you must adopt this unwavering belief that cryptocurrencies are heading mainstream with an explosion in value.
Joining communities with seasoned investors is a great way to adopt this mindset, as like-minded investors are ever willing to encourage your HODL activities and provide guidance and advice for any uncertainties regarding hodling.
How To HODL Like A Pro
Hodling has undoubtedly increased in popularity. Today, it is regarded as a plausible return on investment that offers minimal risk compared to short-term investments and trading.
There are many different methods that you can use to HODL once you have bought some cryptocurrency. Your cryptocurrency can be stored online using a hot wallet or offline using a cold wallet.
Hot wallets can only be accessed using the internet, and they include:
- Exchange wallets that you will acquire when you register on a trading platform or exchange
- Wallet apps that you can download on your mobile device from the Google Play Store or the App Store
- Desktop wallets that you can download on your desktop that has internet access
- Web wallets that are hosted on a specific website
On the other hand, cold wallets don’t require internet access. This means you cannot access it from anywhere as it is a separate device. You will only have access to the cold wallet if you physically possess that device, such as Bluetooth or USB.
Popular cold wallets include household names like Ledger Nano, KeepKey, and Trezor.
Cold wallets are regarded as much safer when compared to hot wallets, as they are not accessible to hackers.
For the best HODL strategy, you should conduct your hodling activities using cold wallets that provide safer long-term storage. If you need to use a portion of your funds, you can simply transfer what is necessary to a hot wallet for easy access, trading, or general use.
Final Thoughts
HODL is a popular investment strategy and is considered to be a safe way to safeguard financial interests. For anyone still learning about crypto markets and improving their crypto skills, hodling can be a technique to gain long-term profits without interfering with your investment.
The main thing is that you must find genuine comfort in holding onto your investment in the wake of frequent crypto storms. By standing your ground and not being swayed by popular sentiment, you will develop tough skin and not be influenced by short-term fluctuations that eventually correct themselves.
Make sure to consider your individual investment goals when thinking about hodling or to sell your crypto, as this will guide you to the right decision.
Ask whether you want a short or long-term arrangement and how long you are willing to wait before selling off your cryptocurrencies.
It is wise to mix up your investments and not put all your eggs in one basket. In light of that, perhaps HODL some of your investment and choose short-term trading for the rest. Remember to stay vigilant to market swings – Good Luck!
