What Is HODLing?

Volatility is to cryptocurrency as the bank is to fiat currency. Those that trade in cryptocurrencies — and succeed — have learned to thrive on the chaos. To avoid losses and also exploit the gains of long-term investing, some crypto investors prefer to buy and hodl.

The bitcoin price rose by 52000% from 2011 to 2013, then fell sharply by more than 80% in 2014.

HODL is a term that originated from a ‘drunk’ post on a Bitcoin forum in 2013. It is a misspelling of the word ‘hold’ and became a viral meme. The joke has since become an accepted word in the crypto dictionary and is now a popular trading strategy.

What is HODLing

When a crypto investor is hodling, they buy a cryptocurrency and hold onto it. It is similar to buying and holding in traditional financial markets. But hodling is born out of necessity as well as strategy, hodlers seek to escape the volatility of the crypto market.

Most buy-and-hodl investors own Bitcoin. The idea is to buy undervalued assets and hold. Then sell when the assets are very profitable.

The hodler thinks that most novice traders would lose money if they try short-term trading. They would also make less than they would if they simply hold then sell when their assets become very valuable.

Origins of HODL

On December 18, 2013, a user on Bitcointalk with the username GameKyuubi made a post titled ‘I AM HODLING’. The post was filled with typos and ranted about how the user was a bad trader. He said that was the reason he was going to hodl his bitcoin.

“WHY AM I HOLDING? I WILL TELL YOU WHY” the post reads, “It’s because I’m a bad trader and I KNOW I’M A BAD TRADER. Yeah, you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks sure no problem bro.”

The post was provoked by the drastic price drop in bitcoin after the Chinese government began a crackdown on cryptocurrency. The price fell from $716 to $438.

GameKyuubi admitted in the post that he had drunk some whiskey and made some musing about the spelling of whiskey.

An hour after the post was uploaded, the word HODL became a viral meme. It was used mainly with images from the movies 300 and Braveheart but there are now several others. Game of Thrones’ Hodor Hodl memes on Twitter are popular.

The HODL Strategy

Just like memecoins, HODL started as a joke but has become an official cryptocurrency term. The famous misspelling has gotten the acronym Holding On for Dear Life and it is well suited.

The HODL strategy focuses on novice traders and shuns short-term trading. Because they are unable to correctly interpret market signals, novice traders are most likely to suffer losses in short-term trading. It would be more profitable if they HODL their assets and wait until the prices rise.

Hodling also has another benefit. Many crypto traders fall victim to two common mistakes when trading. These mistakes are FOMO and FUD.

Fear Of Missing Out (FOMO) makes a trader buy high. FOMO causes a trader to take impulsive trading actions due to fear of missing out on gains gotten by other traders. A trader could buy a coin during a price hike then lose all his profits when the coin suddenly falls.

Fear, Uncertainty, and Doubt (FUD) is the spread of fear mainly through social media. Bad news, which would most likely be fake, when spread on platforms like Twitter can cause a massive drop in the price of a coin. For instance, Elon Musk has numerous tweets about Bitcoin and cryptocurrency, which always creates uncertainty in the crypto market.

Hodlers avoid these mistakes because they do not trade in the short term. Hodling is less risky and does not involve the swinging emotions that short-term trading causes.

Benefits of HODLing

Short-term trading is just as stressful as it is risky. It is an active process that can be a full-time job because the crypto market never sleeps.

Experienced traders might consider the stress a simple inconvenience but this is not the case for novices. Frustration is likely to set in after a couple of losses and it would lead to more losses.

Hodling permits an investor the luxury of investing with little effort exerted. The buy-and-hold strategy requires only keeping abreast with changes in the crypto community and updating your portfolio.

Safety is another benefit of hodling. Hodlers profit through the long-term appreciation of their assets. The strategy shields them from the short-term volatility of cryptocurrencies. They also avoid the risk of buying high and selling low.

Risks of HODLing

Cryptocurrencies are notoriously volatile and there is never certainty concerning their future. Credible voices have predicted that Bitcoin would either “shoot to the moon” or fall to zero. Time has repeatedly proven their predictions right. Bitcoin hit an all-time high of $69,100 in 2021 after falling badly in 2019.

The extreme ups and downs of cryptocurrencies mean that investors are usually well prepared for the risks. A holder should have sufficient capital to prevent forced sales. An unexpected need that calls for liquidity should also be well handled.

In comparison with fiat currencies and other assets, cryptocurrency is relatively new. This brings a lot of uncertainty about its future. Some crypto owners called maximalists, believe cryptocurrency could become a mainstay legal tender in the future. If this happens, it would be irrelevant to exchange for fiat currencies. However, it would not be happening anytime soon.

Countries are yet to fully accept it as a medium of transactions and there are few well-established policies. The crypto sphere is unregulated and has become fertile ground for fraud, money laundering, and illegal transactions. This has given reasons for the unfavorable treatment given to it by governments across the globe.

Climate change issues caused by mining Bitcoin have also posed a challenge. Activists have been affecting public opinions.

These negative factors would significantly affect cryptocurrency in the long term. Unfavorable government policies would hinder international transactions. A negative pull from the public perspective would also affect the value of cryptocurrencies.

However, in the midst of all these vices, hodling has been one of the best ways of maximizing profit in the crypto sphere. More and more crypto traders are exploring the option of hodling.

Institutional investors are not also left out as a lot of companies have purchased Bitcoin worth millions of dollars and have hodled — and may be waiting for the right time to sell.