What does HODL mean?
The term HODL is an acronym that means “Hold On for Dear Life.” Anyone who says they’re a “hodler” or that they’re “hodling” is holding whatever cryptocurrencies they believe in. In other words, HODL is a long-term “buy-and-hold” investment strategy closely associated with digital assets like Bitcoin and Ethereum (ETH).
Anyone who supports hodling will typically have a positive outlook on the future of blockchain technology and Web3. Rather than day-trading digital coins and tokens, a hodler will purchase cryptocurrencies they believe in and wait for them to increase in value. For example, those who think Bitcoin will eventually become a global reserve currency may never sell their crypto assets.
In addition to being an investment style, hodling has inspired a subculture within the crypto ecosystem. Crypto enthusiasts often use HODL in memes to encourage fellow Bitcoin believers to remain optimistic, especially during bear markets.
The story behind HODL
Hodling first gained prominence in the early crypto community in December 2013, when a user named GameKyuubi posted a now-famous thread titled “I AM HODLING” on BitcoinTalk.org. At the time, the price of Bitcoin fell from a recent high of more than $1,000 to roughly $800 per coin.
In this typo-filled post, GameKyuubi argued the best crypto investment strategy for non-professional traders is to buy and “hodl” Bitcoin. GameKyuubi also resisted the temptation to “panic sell” Bitcoin during a recent dip. As GameKyuubi put it, “In a zero-sum game such as this, traders can only take your money if you sell.”
GameKyuubi’s post quickly gained attention on BitcoinTalk, and it eventually spread to the broader crypto community, promoting HODL culture on social media.
How to hodl crypto
When it comes to crypto, hodling is one of the most straightforward investment strategies. All a hodler has to do is buy a digital currency, store it in a wallet, and wait. Although hodling is closely associated with Bitcoin, it could refer to holding any crypto coin or token. For instance, investors who believe in Ethereum could hodl ETH, while those in the Solana community hodl SOL.
Most often, hodlers keep their crypto assets in a self-custodial wallet for years before they consider selling. In some cases, a hodler may never sell their favorite cryptocurrencies.
Pros and cons of hodling
There’s no denying GameKyuubi’s post struck a nerve in the early crypto community. It’s also clear that the HODL method has resulted in significant gains since GameKyuubi posted this thread in 2013. But that doesn’t mean hodling is guaranteed to be successful. There are pros and cons crypto investors should know before becoming a hodler.
- Low time commitment: Crypto investors don’t need to hodl daily by constantly transferring funds. They just need to buy some crypto and store it in a wallet. Since hodling is a long-term strategy, investors don’t need to constantly monitor price fluctuations in the crypto market, which can reduce a lot of stress.
- Minimizes emotional decisions: The HODL technique helps people avoid making rash and irrational trading decisions. New investors commonly let their emotions get the better of them, especially with volatile assets like Bitcoin. People who stick with their HODL strategy will avoid the temptation to “panic sell” during every price correction.
- Easy to understand: Hodling is also one of the simplest methods for new investors to implement. All you need is access to a crypto exchange to start building a HODL portfolio. There’s no need to learn about advanced trading techniques like OCO orders or technical analysis to start hodling.
- Easier to take advantage of price dips: Even if a hodler bought one BTC near a local high, they could bring their average cost down by “buying the dip,” which means the hodler bought one BTC only when the price dropped. Since hodlers don’t plan on selling for years, they can lower their cost basis during bear markets.
- Lower tax implications: Typically, tax rates on hodling are more favorable for long-term investors. For example, in most countries, investors who hodl crypto for at least one year qualify for long-term capital gain taxes, while those who frequently buy and sell crypto assets may need to pay short-term capital gains.
- Unresponsive to market conditions: Hodling is one of the most inflexible investing strategies. To be a true hodler, investors can’t be reactive to any news or sharp price action in their favorite cryptos. Even if recent events call a crypto’s fundamentals into question, hodlers may not cut their losses before it goes to zero. Similarly, hodlers often don’t get the best price for their digital assets because they don’t tend to monitor daily market conditions.
- Still an unproven strategy in crypto: Although “buy and hold” is a well-known investment strategy, it’s unknown how long it will work in crypto. Although the HODL method has been a winning technique thus far, there’s not as much data on the average yearly returns in crypto versus traditional assets like stocks.
- Requires great discipline and a long-term outlook: While the HODL method is easy to understand, it requires a great deal of patience and discipline to put into practice. Hodlers need to feel comfortable with extreme short-term market volatility. Also, since hodling is a long-term strategy, it requires multiyear commitment.
- Ties up cash: Because hodling is a long-term strategy, it limits the amount of capital that can be used for other investments or expenses.
- May discourage the wider adoption of crypto payments: Critics argue hodling runs counter to crypto’s mission, which means more people need to use crypto in their daily lives for it to become mainstream. Simply hodling coins like Bitcoin and Ethereum turns them into investments, which some view as contrary to the goal of cryptocurrency.
The social aspect of HODL culture
For some, the meaning of hodling is much more than an investment strategy, signaling a strong social dimension to HODL culture. They believe in the promise of cryptocurrency and often hodl to inspire other users on forums and social media platforms. It’s also common to find HODL-inspired NFTs (non-fungible tokens) on marketplaces like OpenSea.
During bear markets, crypto believers often turn to HODL culture to keep their focus on the long term. Online HODL forums also help bring together blockchain developers, dApp (decentralized app) creators, and crypto investors.
Is the HODL method the same as DCA?
Like the HODL strategy, DCA (dollar-cost averaging) is a passive and long-term investment strategy. It evens out the average price an investor pays for their crypto. Rather than trying to time the absolute bottom, DCA investors continue buying projects they believe in and hold for the long term. The strategy is widespread among hodlers, but not everyone who hodls crypto uses DCA.
When investors use DCA, they buy small increments of a cryptocurrency at regular intervals. Some investors buy cryptos they like at the same time every week, while others may buy every time their crypto falls by a pre-set percentage.
Can investors hodl non-crypto assets?
While the HODL method will always be linked with cryptocurrency, the idea of buying and holding assets has a long history in finance and is common across the stock, bond, and precious metal markets. And any investor keeping their assets for years can be considered a hodler.
Not everyone in crypto practices the HODL method, but there’s no denying this acronym’s impact on crypto culture. Investors optimistic about the long-term future of blockchain still proudly identify with the HODL investment thesis. And, if more people join the crypto movement, chances are HODL culture will continue to grow.
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