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.
- Crypto markets are highly volatile, which means that investors often find themselves second-guessing their decisions.
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- The ethos and mantra, however, could be applied to any digital currency or even traditional stocks and shares.
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It’s important to state that debating whether or not a HODL strategy is worth it when investing in cryptocurrency is entirely different from the question of whether to invest in cryptocurrency at all. Cryptocurrency is still relatively new and isn’t subject to the same regulation as traditional investing. As with any investment, you should make sure you understand cryptocurrency before you begin investing. Buy-and-hold investing occurs when individuals purchase an asset—often stock—and hold it for a period of many years. Rather than trying to time the market, this strategy simply operates under the assumption that the asset’s price will increase over time.
There’s little sense in earning a 10% annual percentage yield if a coin’s price plummets by 25%. Dozens of high-profile blockchains now use a Proof-of-Stake (PoS) consensus mechanism to validate transactions. On these chains, anyone can lock (“stake”) their coins to earn a percentage-rate reward over time for their help securing the network. Staking on blockchains like Ethereum, Solana, or Polygon earns passive income with minimal effort. What started as a typo in an online forum has developed a real meaning of its own.
- Other users found his spelling mistake hilarious and they became ‘hodlers’ too.
- Luckily, many believe that Bitcoin is still in its infancy and you may still be early if you start investing now.
- 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.
- That BNB is then transferred to a reward pool and is distributed every seven days to investors who hold HODL tokens in their wallets.
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- It’s similar to the buy-and-hold strategies used by many stock market investors.
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Is HODL Worth It for Individual Investors?
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.
It’s also commonly come to stand for “hold on for dear life” among crypto investors. In early bitcoin forums, someone posted a message that spelled the word “hold” wrong, and readers interpreted it as an acronym “hold on for dear life,” Saddington explains. “Now, it’s become a meme of sorts, so that when the prices are highly volatile, bitcoin buyers say ‘HODL!'” Saddington describes himself as “a long-term HODLER.” In that case, investors buy when prices are low, hold an asset while the value increases, then try to sell it before the price dips.
What is hodl in the crypto world and its advantages
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- Tokens based on a blockchain, NFTs are used to guarantee ownership of an asset.
- Also, you’ll get to discover ten other common phrases to use in blockchain forums and chat groups.
- In crypto, the comparable strategy to value investment would be ‘HODLing,’ which works the same way.
- Be observant, keen, and keep an open mind when interacting with other enthusiasts in chat forums and on social media.
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.
Frequently Asked Questions
It is important to know when the right time is because this metric varies from one individual to another. The right time to sell will largely depend on the goals of investing. If these goals are achieved, the coin holder can sell at any price in the market; otherwise, they continue to HODL. HODLing campaigns are also witnessed whenever the price of an asset starts falling. 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.
It is the kind of mindset that will help you learn and contribute more positively to the community. Since large is a relative term, a more acceptable definition of a whale is anyone whose singular actions are able to affect the price of an asset. Individuals who participate in shilling often have a stake in the asset, and by drumming up support for the project behind the asset, they are trying to build up buying pressure which could lead to a price gain.
HODL: The Cryptocurrency Strategy of “Hold on for Dear Life” Explained
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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. Long-term crypto HODLers stay invested because they believe that cryptocurrencies will eventually replace government-issued fiat currencies as the basis of all economic structures. Should that occur, then the Hexn exchange rates between cryptocurrencies and fiat money would become irrelevant to crypto holders. FUD is another acronym that stands for ‘Fear, Uncertainty, and Doubt.’ Part of the reason why cryptocurrency markets are so volatile is that they are vulnerable to public perceptions. Whenever there is negative press coverage, the value of the entire market will fall and the reverse is true.
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 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.
FAQs about the HODL strategy
Depending on your investment strategy and risk profile, HODLing can be a good approach. However, crypto markets are highly unstable and there is no guarantee that HODLing will be successful. Even if HODLing doesn’t seem right to you, there’s still lessons to be learned from this approach. HODLers are a social bunch—their strategy relies on support from other investors, who urge them along and convince them not to sell if they are feeling unsure.
The HODLer History
In crypto, the term is used to refer to individuals or institutions with an outsized investment in a particular asset. Mooning is a related term to ‘When Lambo’ that also refers to stratospheric price rallies. If the price of an asset rises very fast, the community equates that rise to a ride on a rocket to the moon which gave rise to the phrase going to the moon or ‘mooning,’ for short. Trying to beat the market by timing reversals is an expert’s game, and most newcomers to crypto are not experienced at doing that. HODLing thus becomes a safe play for such individuals and institutions looking for long-term gains rather than gaming the system. In the case of Bitcoin, if you’d purchased and HODLed your coins from the start, your profits would be unprecedented.
News & World Report, Seeking Alpha, InvestorPlace.com and The Motley Fool. Mr. Duggan is a graduate of the Massachusetts Institute of Technology and resides in Biloxi, Mississippi. The investor sentiment cycle is a visual representation of the emotions a typical investor experiences based on the performance of the investor’s portfolio over time. Several altcoins that soared during the 2021 crypto boom, such as Dogecoin (DOGE), Avalanche (AVAX) and XRP (XRP), are down more than 88% from their all-time highs. Bitcoin’s extreme volatility has produced a handful of horrendous annual returns throughout the years. For example, Bitcoin shed 50% of its value in less than 48 hours of the Covid-19 pandemic-induced sell-off in March 2020.