INTRODUCTION: “HODL” is a term that’s thrown around a lot in the cryptocurrency community. Since it’s used so often, it has become the slang term new investors usually learn first.
HODL refers to an investment strategy wherein investors muster up the determination to not sell their coins, despite a plunge in the market. When a price plunge occurs, investors will often see the asset with negative sentiment. However, the ones implementing the HODL strategy will continue to hold their coins and not sell.
The term originally came from a post from a popular bitcoin forum, Bitcointalk. A user by the name of GameKyuubi got a bit tipsy on his whiskey and posted a typo-laden message on the forum. He went on about how people were calling him a “bad trader” for not selling during the recent price plunge. Nevertheless, it didn’t stop him from “HODLing,” and despite the comic relief that the drunken rant provided, the essence of the post stuck around and still does to this day.
What was originally a drunken typo posted on the 18th of December 2013, has become a fundamental term in 2020’s cryptocurrency market: “I AM HODLING.” Since its original posting, the cryptocurrency community has then come up with several meanings for the typo, with “Hold On for Dear Life” being the most popular. In fact, it has even been dubbed as an “essential slang term in Bitocin culture” by Quartz in 2017.
A look at it
In this day and age of bitcoin, there are several trading strategies people can use. HODLing doesn’t entail full-time commitment like day trading does and may be the perfect entry strategy for beginners. Instead of buying and selling based on short-term price moves, a user who HODLs simply buys bitcoin and then holds on in the hopes of its price rising in the future.
Despite there being mostly only two steps to HODLing, this trading strategy requires a great deal of emotional strength. Just from 2011 to 2013, bitcoin’s price saw an increase of 52,000%, and then in the following year, it dropped 80%. This volatility in price is why HODLers experience a great deal of emotional stress.
In most cases, there are two antagonists to the HODL strategy: FOMO (fear of missing out) and FUD (fear, uncertainty, and doubt). These two demons can often lead to investors selling at low prices, ultimately making less profit than initially intended.
For hardcore bitcoin believers, also known as Bitcoin Maximalists, HODLing means more to them than just battling the profit-eroding inner demons. The Bitcoin Maximalists believe that, ultimately, cryptocurrencies will replace fiat currencies. To them, it’s more than just about making a profit—therefore nullifying the relevance of the fiat exchange rate.
The pros and cons of HODLing
People who are experienced in trading bitcoin may say that the HODLing strategy may not maximize profit as much as other strategies. Although this may be true for these people, different trading strategies, if not implemented correctly, can do more harm than help.
As mentioned earlier, HODLing may be the perfect entry strategy for new investors. Compared to the technicality of, let’s say, day trading, which is extremely complicated and time-consuming, HODLing may be far simpler. It doesn’t have as steep a learning curve and doesn’t require a full-time commitment, unlike some of the other strategies.
On the other hand, there is the issue of HODLers not taking full advantage of bitcoin’s volatility. If done correctly, other trading strategies have the opportunity to yield more profits as they rely less on hoping for bitcoin’s price to spike. Instead, they rely on the keen eye of traders and their ability to see profit opportunities in the market.
Another disadvantage of HODLing is that because investors are clinging onto their coins “for dear life,” they’re not being used for their original purpose—as a means of payment. Because bitcoin isn’t being used for that purpose, the development of the coin and bitcoin-accepting stores are further slowed. In addition to that, the HODLing of coins creates barriers that prevent mainstream adoption as bitcoin is seen as an investment tool rather than a real tool with real opportunities to help the economy.
Even though the term started out as a typo many years ago, its effect on the cryptocurrency market has been immense. And although it may have its own set of disadvantages, just as everything does, it may still be a viable strategy.
Thanks to GameKyuubi, we have a tried-and-tested strategy (or at least a name for it) to earn a steady profit with our bitcoin.
It’s only fitting that we end with a quote from the post that started it all: “You only sell in a bear market if you are a good day trader or an illusioned noob. The people in between hold. In a zero-sum game such as this, traders can only take your money if you sell.”