May 17, 2024
HODL: Origins & Understanding Hodl as an Investment Strategy
The term “HODL” started as a typo on a Bitcoin message board but quickly became both a trading strategy and rallying cry for crypto enthusiasts. But what does HODL mean? HODLing (pronounced “hoddling”) means holding onto your crypto assets no matter what, even in the face of extreme market volatility. That means not selling for profits when markets surge, and definitely not selling out of fear when markets drop. This post will explain HODLing’s origin story, and trace its evolution from an inside joke to a clarion call for crypto traders everywhere.
The origin of HODL
HODLing made its debut in a post on the bitcointalk forum by community member GameKyuubi on Dec. 18, 2013. At the time, Bitcoin was flirting with the $1,000 mark for the first time after surging from around $130 just eight months earlier. Allegedly drunk at the time, GameKyuubi titled his now-famous forum post “I AM HODLING,” unleashing a rant for the ages.
The whiskey-soaked missive reads in part, “WHY AM I HOLDING? I’LL TELL YOU WHY. It’s because I’m a bad trader and I KNOW I’M A BAD TRADER.”
User GameKyuubi's original HODL post
Essentially, GameKyuubi’s post was acknowledging that virtually nobody can perfectly time their trades to make money in the short term, so there’s no point in trying. If this sounds familiar, it’s because it’s similar to the age-old adage warning investors against trying to “time the market,” as it’s impossible to predict the inevitable ups and downs with any certainty.
Other forum members were quick to embrace the term, and just like that a meme was born. Since HODL entered the crypto lexicon, it’s evolved into a call to arms urging traders to stand strong in the face of market swings, and has become a widely used investment strategy.
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Understanding HODL as an investment strategy
Part of the reason HODL caught on like wildfire is that GameKyubbi’s post actually contained nuggets of legitimate investing wisdom. In investment terms, HOLDing is a variant of the classic “buy-and-hold” trading strategy in which individuals treat securities as long-term investments rather than chasing short-term gains. This inclines people toward investing in things they genuinely believe have value, whether it’s a blue chip company stock or a blue chip cryptocurrency. Make no mistake — HODLing requires a ton of patience, and keeping total control over natural human instincts like greed and fear. But given that historically markets go up over the long term, that patience has a possibility of paying off.
What are the benefits of HODL’ing?
For starters, HODLing makes a great entry point for new crypto traders entering the market. It’s an easy-to-execute investing strategy with no learning curve and no guesswork. Simply purchase and HODL and the deed is done.
Once you’ve decided to HODL, you can also stop obsessively checking in on your investment every day (or hour…or 10 minutes). Because you’re committed to a long-term strategy and are thinking big picture, the day-to-day ups and downs should mean very little to you.
Lastly, look at what would have happened if you followed GameKyubbi’s advice. If you had $1,000 in Bitcoin in December 2013 and HODLed like mad ever since, it’d be worth 60-70 times that as of this writing. Past performance is, of course, no guarantee of future results, but in this real-life example HODLing would have paid off big.
How about potential drawbacks to hodl’ing?
HODLing can be stressful. Very stressful. It’s sometimes used as an acronym for Hold On for Dear Life for a reason, as it can really feel like that when weathering extreme ups and downs. One way around this is to only buy crypto with funds you can afford to tie up over an extended period (and ultimately, lose if your investment goes awry). You wouldn’t want to HODL your rent money, for example, but excess cash you’ve got sitting around that you never really think about makes great HODLing fodder.
Some consider the time and patience required to realize investment gains to be a drawback, but whether that’s true depends entirely on an individual’s financial situation.
Finally, some members of the crypto community take the concept of HODLing to the extreme, even mocking users for taking profits. But at the end of the day it’s your money, and HODLing certainly isn’t for everybody, so take the naysayers with more than a few grains of salt.
Practical tips for HODLing
You might be wondering if HODLing is the right strategy for you. This depends largely on your goals. For instance, if you’re diversifying your portfolio with crypto assets and don’t plan to day trade, you might end up HODLing by default. But some HODLers do so because they deeply believe in the underlying investment’s long-term potential. If you’re an ardent believer that Bitcoin is the future of money, you view your purchase differently than someone whose only goal is fast profits.
Don’t invest more than you can afford to lose
As with any investment, never put funds in play that you can’t afford to lose. Crypto markets can be extremely volatile, so there is always a chance that you might not get your investment back, much less turn a profit.
Resist constant portfolio checking
When HODLing, checking your wallet balance can work against you whether the market is up or down, so it’s smart to avoid it as much as you can bear. If you log in and see you’re up big you may be tempted to skim a little profit off the top. Likewise, if your holdings took a nosedive your instinct could be to sell to stop the bleeding. People make rash investing decisions when they’re emotional, and HODLing is meant to remove some of the anxiety around market swings.
Combine HODL with DCA strategy
Combining the HODL strategy with dollar-cost averaging (DCA) for crypto can be a powerful approach to building and maintaining crypto wealth. By consistently investing a fixed amount of money into cryptocurrencies at regular intervals (DCA), investors can mitigate the impact of market volatility and reduce the risk of making large investments at unfavorable times. Simultaneously, the HODL strategy encourages long-term holding, allowing investments to grow over time despite short-term market fluctuations. Together, these strategies promote disciplined investing and patience, which can lead to substantial returns in the long run.
So, will you HODL?
The crypto community loves a good meme. But the fact that a drunken, typo-laden forum post actually contained a rudimentary framework for a logical trading strategy ensured HODLing was permanently enshrined in the crypto canon.
HODLing makes perfect sense for some investors, but it’s not for everybody and that’s ok. Your own goals and risk tolerances are paramount when crafting your investment strategy. The crypto market changes rapidly, and for most users the ideal strategy will involve a combination of the best practices of the day. The best you can do is to keep learning so you can adapt your strategy as the market continues to evolve.
Note: All information in this article is for educational purposes only, and shouldn't be interpreted as investment advice. BitPay is not liable for any errors, omissions or inaccuracies. The opinions expressed are solely those of the author, and do not reflect views of BitPay or its management. For investment or financial guidance, a professional should be consulted.
