HODLing : What is it ?
The term “Hodl” (“Hold on for dear life”) comes from a typo in an early Bitcointalk forum post, where a user, named GameKyuubi, instead of writing “I am holding”, wrote “I am hodling”. From this typo, the crypto community adopted this term to create an evergreen philosophy: Buy crypto and hold it for a long period without considering temporary market trends and volatility, believing that its underlying value will grow over time. Basically, it’s a mindset of a large percentage of crypto enthusiasts, and behind this term lies an optimistic approach to cryptocurrencies. Considering the historical performance of Bitcoin, it can be considered a great strategy that requires low effort and brings good results. However, as we always state in our educational content, past performances are not representative of future results, and this strategy might not be so effective in all cases, but for Bitcoin, it was.
HODLing also allows investors to have peace of mind because even if the markets crash, they are supposed to not sell or take any actions at all. On the contrary, for more aggressive investors, a market crash could be a good opportunity to “buy the dip”, and increase their crypto bags. People who hodl, in fact, usually implement strategies such as Dollar-cost averaging (DCA), “buy the dip”, or a mix of them, continuously increasing their crypto holdings without selling.
What are the benefits of HODLing?
HODLing could be the perfect strategy for some types of investors since it brings various benefits. Let’s explore them in detail.
Passive management
The main advantage of hodling is that it requires low effort and time, allowing investors to implement passive strategies without the need for constant attention to market movements and major trends. A hodler, simply hodl, without considering market conditions. It’s a good advantage for investors who cannot dedicate so much time to investing and researching, and it allows them to seize the long-term opportunities without considering the short-term threats.
Peace of mind
Volatility and price drops can cause a lot of stress for active investors. Seeing the portfolio drop -40% in a day can be very stressful and brings a lot of anxiety and fear. Additionally, choosing the right timing for buying and selling is very difficult, and active traders usually perform poorly due to emotional factors and psychological stress. On the contrary, hodling can help investors avoid stress and anxiety because, regardless of market conditions, they hodl. Hodlers are not investing for the short-term, but they strongly believe in the underlying value of blockchain technology, aiming for higher prices in a long timeframe. In short, hodling allows traders to implement a “zen mode” and have peace of mind.
Lower trading fees
Often, traders underestimate the impact of trading fees on their investing performances. Every transaction brings a fee, which is usually between 0-2% of the trade. Making a lot of transactions every day can erode the profits and decrease the profit of each trade. On the contrary, by hodling, investors can substantially reduce trading fees, and they save funds that will contribute to maximizing profits through compound interest. Another important factor to consider is the spread: the difference between buy and sell orders due to volatility and liquidity issues. In crypto, considering a remarkable volatility, the spread contributes to decreasing the profits of each trade. HODLers avoid spending on trading fees and save funds.
Simple investing strategies
HODLing can also include other investing strategies, such as “DCA” and “buy the dip”. In the first case, DCA (dollar-cost averaging) means purchasing the same amount of cryptocurrencies at a regular interval and accumulating assets over time without caring about market conditions. It allows traders to increase their bags and follow the average price performance of the asset, decreasing (or increasing) their average purchase price. A good variation of this strategy also includes “buy the dip”, in which investors purchase double or triple the amount of what they usually buy if the market drops, allowing them to consistently decrease the average purchasing price of the assets. In this strategy, market drops are not seen as a problem; on the contrary, they are a buying opportunity that is not to be missed. As you can understand, hodling and its linked investment strategies are relatively easy and straightforward, and that’s not the case it is one of the most used strategies by crypto investors.