Investors may have to experience extreme ups and downs of their asset values, which means they should have much larger risk appetites than investors of conventional investment instruments. They must have sufficient capital capacity to avoid forced sales or meet unexpected liquidity needs. Cryptocurrency is a type of digital currency supported by blockchain technology. It functions as a medium of exchange and can also be held as an asset or investment. Examples of cryptocurrencies include Bitcoin, Ethereum, Ripple, etc.
- GameKyuubi explained in the post that he planned to “hold” his Bitcoin (BTC) investments because he knew he was a bad trader.
- But in general, the idea of investing for long-term, rather than short-term, gains is not a new one.
- Next, you should learn the terminology, and part of that is identifying the unique terms and phrases used by members of the community, what they mean and how to use them effectively.
At the time, the flagship cryptocurrency had lost 50% of its value in two weeks falling from a then all-time high of $1,120 to a low of $560 between December 4th and the 18th. GameKyuubi wrote his post on the 18th, attempting to communicate that he was changing tact to his Bitcoin investment. It is, however, more difficult to engage in market timing strategies in crypto where price volatility is high.
The History of HODL
One in which long-term profits are sought, trying to get the maximum benefit from the cryptocurrencies they have. Moreover, in a normal crypto trading environment, people make money by buying and selling coins as their prices fluctuate. However, it’s actually this trading activity that causes cryptocurrency markets to fluctuate, this is because they’re largely based on the forces of supply and demand. Increased demand pushes prices upwards while significant selling pressure drives prices lower.
- While it’s still unclear if HODLing will pay off for crypto investments, it’s historically been a go to approach for stock traders who want to invest in a bear market.
- The HODL community encourages other investors not to cash out of their crypto when prices rise and not to throw in the towel when crypto prices fall.
- Come back in five years, and you’ll find that some of today’s hottest cryptos never quite made it to the moon, and that diamond-hand hodlers lost a lot of money.
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We do not include the universe of companies or financial offers that may be available to you. It’s been demonstrated that the post’s author made the correct decision. The price of Bitcoin began another surge in mid-2017 and reached a historic high of $19,167 at year-end. However, the price fell again after the 2017 surge; it hiked again during the COVID-19 pandemic and hit a new high of over $58,000 in early 2021.
Can you HODL stocks?
The phrase makes more sense when used to refer to worthless coins or tokens – also called ‘shitcoins’ – that have little to no utility outside speculation. Just like HODL, BTD or BTFD is a term used to encourage more investment whenever an asset’s price corrects during a rally, i.e., it dips. The correction is interpreted as a chance to buy more with the expectation that the price will inevitably rebound to the previous high. The term whale means a very large marine mammal that lives in the ocean.
- If you have a positive outlook on blockchain technology and aren’t afraid of market volatility, HODLing crypto may be worth considering.
- For big investors, a falling market might not offer the right conditions to sell.
- NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
- Keep in mind that other fees such as regulatory fees, Premium subscription fees, commissions on trades during extended trading hours, wire transfer fees, and paper statement fees may apply to your brokerage account.
Even though this is not the original meaning, we think this covers the idea of GameKyuubi fairly well. As he said himself, in a zero-sum game like trading, they can only take your money if you sell. Low cap coins are ideal for pump and dump schemes since instigators do not need to make huge investments to achieve the desired price action. Bag holder is a negative term used to describe anyone in possession of a significant amount of coins or tokens whose value has fallen to a level that it is unprofitable to sell. The strategy has proved right for the most part, as some of the larger assets have seen incremental value gains over a number of years. However, if an analyst could zoom into the monthly price action of most of these assets it would be evident that most experienced wild rides in short-term durations.
HODLing: A Buy-and-Hold Strategy
“To HODL is an acknowledgment that while a lot of money can be made trading short-term volatility, a lot of money can also be easily lost,” Gagnon says. A good strategy, Morrison says, is to have a strong idea of why you’re investing in something when you buy it. And when you’re tempted to sell it, a key question is whether something about your analysis has changed. The devotion among HODLers comes from the culture surrounding Bitcoin and other cryptocurrencies, says David Duong, head of institutional research at the cryptocurrency exchange Coinbase.
- In such a situation, any more selling could lead to further price correction and the best action for the long-term investors is to discourage weak hands from letting go and thereby mitigating further losses.
- HODLing is often seen as a simple and effective strategy, especially for those who prefer to avoid the stress of daily trading.
- Saving is all well and good, but can you imagine being able to save and at the same time earn a profit for it?
- For cryptocurrency maximalists, HODL represents more than a strategy for reigning in FOMO (Fear of Missing Out), FUD (Fear, Uncertainty, and Doubt), and other profit-eroding emotions.
- It can be difficult for even professional traders to time short-term trades.
Investments in T-bills involve a variety of risks, including credit risk, interest rate risk, and liquidity risk. As a general rule, the price of a T-bills moves inversely to changes in interest rates. Although T-bills are considered safer than many other financial instruments, you could lose all or a part of your investment. The above content provided and paid for by Public and is for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such.
Instead of buying low to sell high, i.e., timing the market, he would start HODLing onto his currency and not selling. “In a zero-sum game such as this, traders can only take your money if you sell,” he wrote. And if you’re a HODLer, capital gains aren’t the only way you can make money on cryptocurrency.
- Bag holder is a negative term used to describe anyone in possession of a significant amount of coins or tokens whose value has fallen to a level that it is unprofitable to sell.
- A marketplace for cryptocurrencies where users can buy and sell coins.
- Historical or hypothetical performance results are presented for illustrative purposes only.
“HODLers” buy assets and keep them with the expectation that years down the road, they’ll be worth significantly more than they are today. It’s a healthy part of a sensible cryptocurrency investing strategy when combined with serious research into the quality and long-term prospects of your cryptocurrencies. Most of us will do better with a well-researched hodling portfolio than a short-sighted day trading approach. All investments involve the risk of loss and the past performance of a security or a financial product does not guarantee future results or returns. You should consult your legal, tax, or financial advisors before making any financial decisions.
Where did the term “HODL” come from?
Investors who use DCA regularly buy small amounts of their preferred crypto assets over a long period. Some people purchase crypto at regular intervals (e.g., weekly), while others buy coins whenever they fall by a preset percentage (e.g., every 10% drop in a 24-hour window). In either case, the goal of DCA is to lower an investor’s average cost per coin. However, most HODLers keep their crypto for a minimum of a few years before selling. People who believe cryptocurrencies like Bitcoin will become mainstream currencies may never sell their portfolios, opting to keep their assets until they can spend them like fiat currency. HODLing means buying cryptocurrency and holding on to it long-term.
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HODLing is a cryptocurrency investment strategy not unique to crypto but rather a rehashed term made to appeal to the eccentric crypto community. The term HODL emerged from a 2013 message board post on the Bitcointalk forum as an errant misspelling. With a relatively short history compared to other types of assets and fiat currencies, cryptocurrencies face a future with lots of unknowns. Without surveillance from a central authority, cryptocurrencies can be used for fraudulent activities, such as illegal transactions and money laundering. Hodling crypto only works with long-lived digital currencies that can build value over time. When you hodl one of the short-lived cryptos, that promised trip “to the moon” turns into a deep-sea dive with no return ticket instead.
What is hodl in the crypto world and its advantages
The new definition helped illustrate the gist of HODLing to the masses. It takes a lot of emotional strength not to sell a plummeting asset, hoping that it will revert to greater heights. The term HODL, which has been in use for a few years, is the article’s main point of emphasis.
What Is HODL?
Some investors choose to HODL after buying during price drops, while others continuously invest over time, a strategy known as dollar-cost averaging. While some HODLers store their virtual currencies on centralized crypto exchanges (platforms for buying and selling cryptocurrency), many prefer to move their assets to self-custodial hardware wallets. A self-custodial wallet is strictly managed by the wallet holder, meaning there’s no centralized intermediary between the trader and their crypto. Keeping assets in a “cold” hardware wallet, like a USB drive, prevents hacking and theft— and unlike a centralized exchange, it’s completely offline. Although hardware wallets are less convenient to use, HODLers are hanging on to their assets for years, so they only have to worry about keeping the device safe until it’s time to sell.
The author admitted to being a ‘bad trader’ and decided to hold onto his Bitcoin investment regardless of the bear market, thus becoming one of the earliest Bitcoin investors to promote this strategy. HODLing is simple to understand, but it requires a lot of patience, discipline, and conviction. Suppose a buyer isn’t fully convinced about the future of their coins. In that case, it’s challenging to HODL through market downturns—particularly because cryptocurrencies are among the most volatile and speculative asset classes.
Then, that person is left with “a coin they don’t want at a price they can’t sell it [at].” To make sense of such crypto-slang, CNBC Make It asked Peter Saddington, a serial entrepreneur hexn.io and early bitcoin investor who runs a bitcoin community called The Bitcoin Pub, to break it down. Saddington first purchased bitcoin in November 2011 when one coin only cost $2.52.
It’s impossible to argue that long-term Bitcoin HODLers have not done well. Since its debut in 2009, Bitcoin’s value has climbed from just pennies to more than $60,000 at one point. So, a long-term buy-and-hold approach would have returned traders many times their initial investment, because the strategy prevented them from selling when things got tough. Whether you’re new to crypto or a seasoned investor, it’s important to make informed decisions about strategy—and that means knowing your options. Anyone interested in crypto’s future should understand what HODL means.
Digital currency is notoriously volatile, and those who try to time the price swings may find themselves buying high and selling low — gradually or quickly eating away at their capital. The term quickly caught on, and soon, other investors in the crypto community started using ‘HODL’ to represent a long-term investment strategy, emphasizing belief in the future of digital currency. HODLing means resisting the urge to sell your digital assets, even when the crypto markets are notoriously volatile. It’s an approach that prioritizes long-term gains over short-term trades. If you’re interested in staking while you HODL, read through your cryptocurrency’s rules before depositing your funds. Be sure you know how long it takes to withdraw your digital assets and research the track record for each validator pool.
The HODLer History
Still, if Bitcoin bulls are correct and BTC eventually becomes the world’s universal digital currency and preferred long-term store of value, long-term HODL’ers will benefit. “HODL can be employed, particularly when the market is declining, to assist investors in avoiding the urge to sell in a panic,” Porter says. Harry Turner, founder of The Sovereign Investor, says the key to Bitcoin’s long-term investing outlook is its leading market position and its fixed supply. Value investors rely on fundamental metrics like price-to-book (P/B), price-to-earnings (P/E) and price-to-sales (P/S) ratios to estimate the intrinsic value of a stock.