For newcomers to cryptocurrency investing, there can be some confusing jargon used in forums and articles. Words like FUD, Moon, and HODL, which originated as chat room slang, are now commonly-used industry terms. Navigating the crypto market can be confusing enough as it is, without the addition of an entirely new language!
HODL is a popular term amongst crypto investors. And though it may appear like just a misspelling, it’s actually an investment strategy used by many.
Let’s look into what the strategy is and why this term is such popular jargon in the cryptocurrency industry.
What Is HODL?
The term HODL originated as a misspelling of the word “hold.”
Ultimately the acronym Hold On for Dear Life was attached to the term.
On the fateful day of December 18, 2013, a drunken trader with the username GameKyuubi posted on a Bitcointalk forum:
“I AM HODLING,” he began.
In the 24 hours prior to his post, the price of Bitcoin had fallen 39%, from $716 to $438. This was after a year-long bull run in which Bitcoin rose from $15 in January 2013 to a high of over $1100 in December.
GameKyuubi had made up his mind to stop trying to time the markets, and to simply hold his Bitcoin from that point on.
“I typed that tyitle twice because I knew it was wrong the first time. Still wrong. w/e
WHY AM I HOLDING? I’LL TELL YOU WHY
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 pay piffy wing wong wang
Just like that and make a millino bucks sure no problem bro.”
Despite the confusing spellings, this is an all too familiar feeling for traders in forums. He continued with his HODL strategy,
“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.”
The cryptoverse went wild. HODL became an internet meme within the hour, and its use as a legitimate investing term spread from there.
Understanding the HODL Strategy
The strategy of HODLing entails not selling cryptocurrency as the market goes up or down. It’s more extreme than simply holding, hence the acronym Hold On for Dear Life. This means holding, even through extremely volatile times.
This strategy can be a smart way for investors who might otherwise try to time the market , and is used especially when the market is going down and investors refuse to panic sell. This is the same as the “buy and hold” strategy used by many successful stock traders.
Investors who don’t use the HODL strategy are similar to day traders of stocks or forex , who seek to profit from volatility in the market. These investors attempt to buy low and sell high, or to short sell.
The HODL strategy takes a long term view of cryptocurrency investing. Investors who HODL believe that in the long run, the value of their holdings will rise, despite any short term volatility.
Similar to the stock market, it’s common for investors of crypto to panic when the market starts to go down, and sell their holdings when the market is down.
If investors adopt a HODL strategy, they understand that the market fluctuates up and down, and they hold on to their holdings through the dips. This is especially smart for amateur investors who are more prone to panicking.
Although anything is possible, it’s unlikely that a downturn in the market will result in the entirety of cryptocurrency going to zero and disappearing, especially if an investor is holding one of the top cryptocurrencies.
Typically, the market recovers, although it can take time for it to return to its previous highs.
Knowing When to HODL
Deciding when to hold or sell cryptocurrencies is a personal choice, and investors should do their research and due diligence before making those decisions. Some investors choose to adopt a HODL strategy across the board, meaning they buy cryptocurrencies to add to their portfolio and don’t plan to sell them for many months or years.
While this is a good move for people who believe in the long-term value of Bitcoin and other cryptocurrencies, it won’t necessarily play out in their favor. The future of the industry is yet to be seen, and hacks, bad news, and other world events can have catastrophic effects on crypto prices.
Some choose to HODL certain coins, such as Bitcoin, but to actively trade other coins which they don’t necessarily believe have as strong a future. Good HODL coins tend to be more established and stable, although HODLing a coin with a lower market cap could result in higher profits if it grows significantly over time.
The HODL strategy is also a good choice for investors who don’t want to spend a lot of time on their cryptocurrency portfolio or are new to the technical analysis of crypto investing.
Investors can just choose which coins to buy and then hold on to them rather than checking in on the market every day and making trades.
This is a long term strategy which works for some, but not everyone wants to invest in this way. HODLing may be a good rule of thumb if the market is dropping and investors feel the panic urge to get out.
It’s always smart to build a diversified portfolio, so that if one coin drops, others might still be doing well. There are hundreds of different cryptocurrencies available to invest in to build a diversified portfolio.
The cryptocurrency market is very volatile, especially since it’s still in its infancy, and may not be for the faint of heart. As with any investment, it’s important to do research, pay attention to the market, and know that anything can happen, even the loss of an entire portfolio.
If an investor is planning on holding onto a cryptocurrency for a long period of time, they’ll want to make sure their holdings are as secure as possible.
Keeping cryptocurrencies stored on a paper wallet or a cold storage wallet is much safer than holding them on exchanges.
Cold storage wallets are more secure because they are not connected to the internet, making them far more difficult for hackers to access.
Knowing What to HODL
For HODLers, as with all investors, building and maintaining a diversified portfolio is key.
This may mean the investors need to add more money to their portfolio over time, or that they need to sell one cryptocurrency for another. For example, in previous years Bitcoin’s price has increased significantly, while other coins haven’t grown as much.
This means that if an investor owns Bitcoin, their portfolio will be imbalanced with a large percentage of their holdings in Bitcoin.
They may want to rebalance their portfolio to maintain diversification, since they are now at risk if Bitcoin’s price falls. There are hundreds of coins available on the market, but not all of them are good choices for HODLing.
While HODLing can be a good strategy, it’s not completely passive and involves the investor paying attention to their portfolio and rebalancing over time.
Alternatives to HODL
Besides day trading and HODLing, others choose to SPEDN or BUIDL using their cryptocurrencies. These are strategies to help the industry grow, which will ultimately make cryptocurrencies more valuable.
The philosophy behind spending (SPEDN) is that by using cryptocurrencies to buy goods and services, it encourages the adoption of crypto use in the real world.
The cryptocurrency industry is young, and needs a lot of development and work. This is why some choose to build (BUIDL) companies, platforms, apps, and tools to use with cryptocurrencies.
Become a HODLer
If you’re just getting started with investing in cryptocurrencies, you may decide to become a HODLer. Whether you’re looking to start building a cryptocurrency portfolio, or you’d rather stick to more traditional investments, there are great tools to help you along the way.
On SoFi Invest®, investors can trade their first cryptocurrency with as little as $10. Doing so will get them a bonus of $10 in Bitcoin. Unlike the stock market, investors can also trade cryptocurrencies like Bitcoin, Litecoin and Ethereum 24/7. Plus, SoFi takes security seriously and uses a number of tools to keep investors' crypto holdings secure.
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