Understanding HODLing, a trusted crypto investing strategy

Explaining HODL: A Crypto Investing Strategy [Updated] | CoinSwitch

HODL—an intentional misspelling of ‘hold’—was first used online in 2013 on the crypto forum Bitcointalk. A contributor on the forum posted how and why he was not going to sell his Bitcoin as he wasn’t a good trader. Instead, the contributor talked about HODLing his Bitcoin for a long time. 

The misspelled word stayed and crypto HODLing became a popular crypto investment strategy. Interestingly, HODL’s expansion—hold on for dear life—was invented after the typo became popular.

What is HODL in Crypto?

HODL is a crypto investment strategy that involves buying and not selling a cryptocurrency even when the market is volatile. In other words, it is the crypto version of coffee can investing where investors buy a token with the intention of holding or HODLing it for a long time. The term HODLing was specifically coined for Bitcoin. 

Bitcoin is the oldest and most valuable cryptocurrency, which makes it an investment-grade crypto worth HODLing to earn returns. 

Essentially, the buy-and-hold strategy referred to by the term HODL will work for fundamentally strong tokens that have use cases in booming sectors such as Artificial Intelligence and Decentralized Finance. This is because HODL is an investment strategy and not a trading strategy. Therefore, the token should have a long-term use case, unlike penny tokens such as meme coins. 

Day Trading vs. HODLing in Crypto

Day trading and HODLing are two different crypto trading strategies. While HODLing means buying a cryptocurrency with a long-term investment purpose, day trading involves buying and selling the token on the same day to benefit from short-term price fluctuations. 

Day trading is riskier than HODLing, but can provide significant returns in volatile markets. On the other hand, HODLing is a straightforward strategy that involves buying a token and sitting on it for long-term gains. 

Day traders execute multiple trades in a single day, while those who HODL will keep their crypto holding for a long time, sometimes years. HODL enthusiasts believe in the long-term prospects of the token and are not bothered about short-term price fluctuations and price corrections. 

Though relatively easy to follow, the HODL strategy requires a lot of technical and fundamental research in crypto selection and requires discipline in HODLing once the crypto is bought. Additionally, the holder will have to monitor the investment at regular intervals.  

Benefits of HODL in Crypto

Crypto HODLing has emerged as a trusted crypto investment strategy. Here are the benefits of HODLing crypto: 

  • You don’t have to time the market  

HODLing crypto means holding the asset for a long time. The strategy saves you the hassle of timing the market to get the crypto at the best possible price. The long-term investment horizon of the HODL crypto strategy nullifies the price volatility observed over a short period, making the market-timing strategy largely irrelevant. 

  • A hands-off investment strategy

Crypto day trading is a full-time job. Besides, crypto is a 24-hour market, making day trading time-consuming and taxing. HODL is a hands-off investment strategy as it does not require daily monitoring. 

  • Reduced transaction costs

Transaction costs depend on the number of trades placed. HODLing involves placing fewer trades than day trading, reducing transaction costs. The overall returns will also be maximized as costs are less. 

  • Improved chances of higher returns 

Crypto HODLers can maximize their returns by capitalizing on the overall crypto market growth over time. They benefit from compounding market returns, maximizing yields. 

Limitations of HODL in Crypto

While crypto HODLing is a great investment strategy, it does have some drawbacks. Here are some of them.

  • Lack of extensive track record

Crypto is a relatively new asset class. Therefore, the long-term track record that HODLers seek will be available only for established tokens. This is a handicap that crypto investors face when investing in newer tokens. 

  • The opportunity cost of tied-up cash 

Crypto HODLing means staying invested for a long time. This means the resources will be tied up for the investment tenure. Thus, investors tend to miss out on other investment opportunities. 

  • Cryptos are a risky asset class

Cryptocurrencies are risky investments prone to high volatility. Moreover, they are unregulated assets and this adds to the risk. HODLing a crypto investment is inherently risky compared to other asset classes. 

5 Tips to Become a Successful HODLer

Crypto HODLing is a great investment strategy that can help lower risks. Here are some tips that could help you become a successful crypto HODLer:

  1. Research before investing

HODLing crypto is a time-tested investment strategy. You need to invest in cryptocurrencies with a promising future to get significant returns on your investment. You should research a crypto to determine if it is investment-worthy. The research can involve fundamental and technical aspects regarding the token.

  1. Build a diversified portfolio

It is important to hedge risk. Diversification in your HODLing portfolio can help you hedge risk while giving you returns on your investment. 

  1. Expect market volatility

Crypto markets are known for price volatility. Be prepared for short-term market fluctuations and notional loss or reduced gains in your portfolio.

  1. Invest what you can afford to lose

Crypto markets are unpredictable and can go from highs to lows within hours. When investing in cryptos, it is best to play safe by investing only what you can afford to lose. 

  1. Be patient 

Volatility is a constant when talking about HODLing crypto strategy. HODLers need to have conviction in their decision and have the patience to stick to their decision when the markets are volatile. 

Is HODLing a Good Strategy?

HOLDing simplifies crypto investments by minimizing the need to time the market. Crypto HODLers benefit by staying invested and gaining from the overall market growth. HODLing is simpler than day trading and thus would appeal to investors who prefer a hands-off approach to crypto investments. 

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered investment/financial advice from CoinSwitch. Any action taken upon the information shall be at the user’s risk.

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