There are a host of stock market myths out there and just like any other investment including crypto, the stock market also goes through bull and bear periods. HODLing stocks can help investors avoid the instinct to pull out when the market is in decline. By holding stocks for the long term, investors can weather short-term market instability. The term “HODL” first appeared in an online cryptocurrency forum in 2013 as a misspelling of the word “hold” — a typo that readers quickly embraced. HODL, or “Hold On for Dear Life,” is now a widely known concept in the crypto community that refers to the strategy of not selling your digital assets, even amid extreme price changes in the market. And given Bitcoin’s latest bout of volatility, HODL remains relevant a decade later in 2023.
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- 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.
- Ben Gagnon, chief mining officer for Bitfarms, says HODL is more of a mentality than an investing strategy.
- 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.
- It’s been demonstrated that the post’s author made the correct decision.
A Beginner’s Guide To HODLing Crypto
The goal of this strategy is to ride out the volatility of crypto investment and eventually benefit from a long-term appreciation of the purchased coin. Although there is no guarantee of price appreciation, cryptocurrency investors adamantly believe that holding a coin long enough will eventually lead to positive returns. In past, this has been particularly true for Bitcoin and Ethereum investments.
Cons of HODLing
Some influencers even encourage their followers to “hodl” various crypto tokens as part of their long-term strategy. 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 $70,000 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. Hodling sounds a lot like the long-term buy-and-hold strategy The Motley Fool employs in the stock market.
Pros and cons of the HODL strategy
But there are countless people who have lost money trading Bitcoin in the meantime, buying it when it was high and bailing out after a disappointing fall. Bitcoin has only been around since 2009, giving it a limited long-term track record compared with stocks, bonds, real estate and other assets. Others have argued that the stubbornness and close-mindedness of HODL culture is “cult-like,” blinding the community to any legitimate criticisms of Bitcoin as an investment or a currency. A 10% tax is applied to each HODL transaction, and the tax is automatically liquified and converted to BNB (BNB). That BNB is then transferred to a reward pool and is distributed every seven days to investors who hold HODL tokens in their wallets. 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.
HODLing might not be the best strategy if the investor is looking for short-term gains. The misspelled term “HODL” circulated quickly in the forum and spread to other cryptocurrencies. Cryptocurrency investors use the term to refer to buy-and-holding assets for a longer time horizon rather than making frequent trades. An asset-holder who follows the strategy does not sell, even as the market changes. Many people who “HODL” do not even pay close attention to the day-to-day market movement of cryptos, instead preferring to take a long-term view of their tokens.
Is HODLing a Good Investment Strategy?
This approach believes that popularizing digital currencies can help raise their value. When you HODL, you give up the chance to invest that money in a diversified portfolio of stocks, bonds, exchange traded funds (ETFs), and mutual funds. That means that youre missing an opportunity for potential gains in those markets.
“HODL” originated as a misspelling of “HOLD” (written in all caps), in an online post by an early Bitcoin investor. But “HODL”, as it has gained popularity among crypto enthusiasts, has come to mean “hold on for dear life”. Crypto HODLers, like buy-and-hold stock investors, pride themselves on “holding on” by not selling their cryptocurrency, no matter what happens in the crypto markets. Due to their highly volatile nature, cryptocurrencies provide great opportunities for traders to build up long and short positions frequently. However, “hodling” can provide more safety to investors, as investors are not exposed to short-term volatility and can avoid the risk of buying high but selling low.
Supporting documentation for any claims, if applicable, will be furnished upon request. Tax considerations with options transactions are unique and investors considering options should consult their tax advisor as to how how to withdraw dollars from cryptopia taxes affect the outcome of each options strategy. While its still unclear if HODLing will pay off for crypto investments, its historically been a go to approach for stock traders who want to invest in a bear market.
This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. We believe https://cryptolisting.org/ everyone should be able to make financial decisions with confidence. HODL culture has been a major help to long-term investors in Bitcoin and other top cryptocurrencies. But critics of HODL culture point out that the mindset only works if the value of cryptocurrencies continues to trend higher over the long term.
Before investing, review the company’s standing, looking at things like earnings and sales, vision and background of management, and the overall status of the industry. HODLing requires a long time horizon, so its usually best for investors that dont need access to their cash for a long time. If youre looking to cash out quickly, HODLing may not be the right approach for you. 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.
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. The HODL strategy has since its origin been used as a community anthem used whenever the price of a digital asset has been rallying. The idea is to discourage selling at the top, which could possibly trigger a reversal of the asset’s price.
The idea behind this strategy is to encourage users to contribute to the development of cryptocurrency infrastructure, which will ideally may raise the value of digital currencies. Its important to consider cryptocurrency volatility in your investment decisions. Crypto forums may preach the benefits of HODLing, but there isnt definitive proof that it works for crypto investments in the same way it has traditionally worked for the stock market. HODLing is a sound investment strategy that has been successfully applied even within the traditional markets.
For big investors, a falling market might not offer the right conditions to sell. Value investors such as Warren Buffett use this strategy when investing whereby they identify undervalued companies, buy the stocks cheap and hold them for several years. The idea is that the value of the stocks would have risen considerably within this period. HODLing is a cryptocurrency investment strategy not unique to crypto but rather a rehashed term made to appeal to the eccentric crypto community. With a relatively short history compared to other types of assets and fiat currencies, cryptocurrencies face a future with lots of unknowns.
Cryptocurrencies are considered to be highly volatile assets, and it’s not unusual to see daily price changes of 20+% in either direction. Even Bitcoin, now a relatively stable cryptocurrency, still registers 10-20% moves in some days. For instance, if the asset is in the middle of a bear market, there will be fewer buyers than there are sellers.
NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance.
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. In crypto, the term is used to refer to individuals or institutions with an outsized investment in a particular asset.
To effectively HODL, beginners must understand the importance of Dollar-Cost Averaging and how it pairs perfectly with the HODL philosophy, especially for cryptocurrencies. When the time comes to sell several years down the line, reflecting on your goals will help realize profits and understand that it is better to leave the last 10% to the rest. Those new to Bitcoin mining will find the fundamentals covered here and advice on selecting and configuring the hardware necessary for a productive mining session. Our cloud service makes it easy to deploy container-based GPU instances in seconds, from either public or private repositories.
HODL is also the name and symbol of a token on cryptocurrency exchange Binance’s Smart Chain. Bonds.“Bonds” shall refer to corporate debt securities and U.S. government securities offered on the Public platform through a self-directed brokerage account held at Public Investing and custodied at Apex Clearing. The value of Bonds fluctuate and any investments sold prior to maturity may result in gain or loss of principal. In general, when interest rates go up, Bond prices typically drop, and vice versa.
“The people who are in the space very much have a belief about the transformative nature of the technology itself,” Duong says. Neo from The Matrix asks Morpheus, “What are you trying to tell me, that I can trade my Bitcoin for millions someday?” Morpheus responds, “No Neo, I’m trying to tell you that when you’re ready … you won’t have to.”