Although cryptocurrency has been around for over a decade, it is still misunderstood by many. The entire crypto ecosystem is complex, new and rapidly evolving. It is made even more complex because of the unusual terminology used in crypto circles.
A prime example is the term HODL. What does HODL mean in crypto? It’s an intentional misspelling of the word hold, but the phrase was originally coined during an allegedly whiskey-fueled rant on Bitcointalk in 2013.
If you are interested in entering the cryptocurrency market or are already actively involved in trading the growing asset class, this guide is for you. The meaning of HODL, the benefits of this strategy as well as how and when you can implement it are explored below.
History of the HODL Method
The origins of the HODL method can be traced back to 2013. This is the first documented appearance of the phrase, which seemed to be an accidental misspelling of the word hold, typed all in capital letters.
The originator posted the term on a forum under the username GameKyuubi in reference to their poor day trading performance in a bear market. They went on to declare that unless you're a good day trader, who recognizes and understands price action patterns, you should avoid selling in a bear market and just keep hold of the asset.
Over the years, HODL evolved from a meme circulating the crypto community to a full-fledged, crypto trading methodology. Now, HODL is an acronym that stands for: hold on for dear life.
HODL Strategy Explained
The HODL strategy is simple. It involves holding onto your crypto investments while volatile fluctuations run their course. The strategy is founded on the premise that the long-term value of these cryptocurrencies will skyrocket, so investors should stand fast even when values begin to drop.
As you can imagine, holding onto investments amid bearish conditions or a drawdown requires resolve. This is especially true if you have the opportunity to cut bait and make a tidy profit before prices bottom out.
Knowing What to HODL
The HODL method is very straightforward. At its core, the method guides traders to cling to their cryptocurrency investments — even if the market has turned against them. This seems counterintuitive to most experienced investors, especially those who focus on day trading. After all, day traders act to seek profits and are used to flipping their assets for a quick return. Often in a matter of hours (sometimes even seconds), balking at the idea of long-term strategies like HODLing.
To HODL effectively, you must know what to hold onto and which coins to shed when things look bleak. Typically, crypto investors HODL majors like Ethereum and Bitcoin, as these assets are ancient institutions by cryptocurrency standards. But a simple “sell fledgling cryptos and cling to established ones” is far from a comprehensive trading strategy.
On that note, you should strongly consider partnering with a crypto broker, especially if you’re not sure which currencies to HODL and which ones to ditch.
Pros and Cons of HODLing
The HODL method has several benefits and drawbacks, which are outlined below.
By using the HODL method, you could:
- Reap the benefits of rebounds
- Potentially earn a significant return
- Avoid missing out on market resurgences
Despite these benefits, there are some serious consequences if you HODL the wrong crypto.
Misusing the HODL method could cause you to:
- Lose everything
- Miss out on opportunities to cut your losses
As you can see, the HODL method is by no means guaranteed to bring you success. Instead, it is a general fallback rule for traders with limited experience in crypto.
Should You HODL?
There are undoubtedly instances where the HODL method is a viable investment strategy. On the other hand, there are scenarios where you should cut your losses and sell off a cryptocurrency immediately. The ability to know the difference is what differentiates profitable investors from the rest.
To HODL or Not to HODL?
There is no question that investing in cryptocurrencies can be risky. However, these risks can be offset by the potential upside to be had, especially in bull markets. Investing in a bucket of well-established cryptocurrencies is a balanced and risk-adjusted strategy. Conversely, putting all your eggs in one basket, allocating all your capital to an emerging or unproven crypto can cost you big time.
With that said, there are ways to mitigate some of the risks associated with investing in cryptocurrencies. First off, you should familiarize yourself with the differences between stocks and crypto. This will help you better balance your portfolio and pick the ideal investment strategy according to your goals and risk tolerance.
From there, you should identify reputable cryptocurrency exchange platforms or brokerages and research them to see if they’ll meet your trading needs.
After you have grasped the basics of the crypto market, you are ready to trade to succeed consistently in the rapidly evolving crypto marketplace. You will need to continue learning and seek guidance to gain a deeper understanding of the nuances involved with crypto investing. For that deep market insight, you should strongly consider leveraging a personal crypto broker service.
Frequently Asked Questions
What does HODL stand for?
HODL means “hold on for dear life.” The HODL method involves buying an asset and holding it as a long-term investment regardless of market volatility or price changes.
How long should you HODL crypto?
There is no one-size-fits-all answer to this question. In some instances, you may want to HODL your crypto indefinitely. In other scenarios, you might have a specific profit margin you want to reach before selling off your cryptocurrency. Your HODL strategy should be tailored to your individual investment goals.
Is it better to HODL for trade?
At times, yes, the HODL method can be beneficial for investors. However, it may not be the right approach for those who specialize in day trading and other short-term investment practices.