A history of HODLing: Time tested strategy or old fashioned practice?
If you’ve ever googled cryptocurrency, chances are you’ve come across the term ‘hodling’ – a commonly used investing strategy among crypto enthusiasts worldwide. But where did this term come from? Let’s find out.
More than a meme
The term first arrived on the scene in late 2013 in the form of a post on an online forum by forum member GameKyuubi who made history with his declaration: ‘I AM HODLING’. GameKyuubi’s forum post has been read almost 800,000 times since then, solidifying the term “hodl” into crypto lingo. At first glance, this might have given you a smile considering the bad spelling of the intended word ‘holding’, however, the term would go on to become a popular reference to the trading strategy.
Not only did the iconic misspelling capture the passionate intensity of early cryptocurrency adopters, and has become a commonly used term by today’s crypto natives, it also evolved into an acronym of ‘holding on for dear life’ that referred to holding on to your crypto assets regardless of the movements occurring in the market.
However, with Bitcoin and cryptocurrency prices coming under pressure throughout most of 2022 and Bitcoin’s price losing almost 20% so far this year, can this strategy still be considered as a viable option?
A time tested strategy
You don’t have to look far in today’s news to see frequent, prominent examples of successful hodlers.
Tesla billionaire Elon Musk made headlines last year when he added $1.5 billion of Bitcoin to Tesla’s balance sheet and has now reaffirmed his strong stance on crypto, stating that he still owns and ‘won’t sell’ his crypto holdings – advising his followers not to hold dollars when inflation is high.
Memes aside, hodling is a popular trading strategy. It doesn’t require you to be glued to your phone monitoring market movements, you aren’t exposed to short-term volatility, and can avoid the risk of buying high but selling low. Once you buy the asset, all you need is some self-control and a goal. As a result, hodling has the potential for large payoffs should the investment become popular later down the line.
For example, although not entirely focused on cryptocurrencies, US-based Indian investor Mohnish Pabrai, well known for his advice regarding sound investing strategy, explained that the most important skill for a good investor “is to be very content with not doing anything for extended periods”.
However, it is important to note that while it may appear to have no downside, hodling as a strategy in the crypto market does not come without its own share of risk.
Not without limitations
Whether to hodl or trade cryptocurrency remains a massive challenge for those entering the crypto world.
While some financial planners and analysts may argue that hodling is a rational response to a market whose ups and downs are exceedingly difficult to predict, it is important to remember that due to the economic climate and volatile nature of cryptocurrencies, the time horizon may be longer than initially expected and might need to be factored into an investor’s considerations before making any decisions.
In general, the idea of investing for long-term, rather than short-term, gains is not isolated to crypto alone. A common guideline for investing in the stock market is to only invest what you’re willing to lose. The same applies to hodling.
One Reddit post on hodling went further, explaining that you can’t expect prices to keep going up indefinitely. “At some point, you have to make the decision to take profits and reinvest,” the user explained. When this point should occur, however, is ultimately up to the individual.