One of the terminologies that have surfaced in the context of the growth of cryptocurrencies is “HODL.” Despite having the appearance of an acronym—one of those words like FBI or KFC that shorten a word into its initials—HODL is actually just a silly misreading of the word hold.
So what does HODL mean when you’re trading crypto?
The HODL meaning first appeared as an incorrect typo in a 2013 message board post on the Bitcointalk forum. Backronyms are when words are added to an acronym to give it a similar or new meaning that wasn’t intended at the word’s origins. Since then, some traders have retroactively redefined HODL to mean “hold on [for] dear life.”
What is HODL & Where Did It Originate From?
The precise beginning of HODL is well known, and the context in which it emerged teaches cryptocurrency traders and those who want to begin trading cryptocurrencies a valuable lesson.
The phrase “I AM HODLING” was used by Bitcointalk user GameKyuubi on December 18, 2013, as part of a tirade against the difficulties and even futility of trading cryptocurrencies. The price fluctuations of digital currency are notoriously unpredictable, and those who attempt to time it may risk losing money by purchasing high and selling low.
Social media almost soon turned the phrase into a meme, and the typo is still used on online discussion boards like Reddit’s infamous Wall Street Bets board.
For people who invest in cryptocurrencies, the phrase “HODL” has evolved to signify their commitment to the industry over the long term. Those who acquire and hold crypto may refer to themselves in Reddit or Discord forums as “HODLers” and extol the merits of having “diamond hands,” indicating their declared reluctance to sell risky commodities such as bitcoin. These phrases contrast with “paper hands,” or people who are prepared to sell when volatility increases.
But these expressions have spread beyond cryptocurrencies to include other assets like stocks. Individual traders banded together around the slogans during the run-up in the stocks of GameStop and AMC in 2021, encouraging one another to stick to their positions or even buy extra on the dips.
The Strategy of HODL
Purchasing a cryptocurrency with the intention of holding it for a very long time is known as HODLing. When your cryptocurrency is rising in value, you shouldn’t take profits, and you shouldn’t sell when the price is down if you want to do it right.
It essentially goes against day traders’ attempts to maximize their short-term bitcoin profits. Every day, traders buy and sell their cryptocurrency. Only when there are opportunities do HODLers buy, and then they buy more.
Additional benefits of a HODL strategy:
- Regardless of the type of asset, this technique makes a lot of sense for an investment that has space to grow. By enduring the volatility, you give the asset plenty of opportunity to bounce back.
- You are able to continue delaying taxes even as your investment grows since you avoid realizing capital gains on your investments. The IRS notes that while many cryptocurrency traders may believe their investments are tax-free, they are in fact taxable.
- Instead of attempting to time an exit moment, you can engage in other activities you enjoy if you don’t keep an eye on the market all day.
- Instead of being times of fear, gloom, and hand-wringing, price decreases become chances to think about buying more when one has a buy-and-hold mindset.
The drawback is that not all cryptocurrency tickers are long-lasting. There are thousands of cryptocurrencies available now, but there are far fewer long-term winners among them. A few cryptocurrencies are jokes, while others are money-making scams, and yet others have the best of intentions but poor technological implementations.
Therefore, cryptocurrency traders must carefully grasp what they are investing in. Since no actual assets or cash flow back cryptocurrencies, its renowned volatility is a result of the fact that it is purely based on sentiment (with the exception of stablecoins). Perhaps the majority of the 10,000 or so crypto coins currently in circulation will become worthless.
Crypto Trading vs. HODLing
If you return in five years, you’ll discover that some of the most popular cryptocurrencies today never quite reached the moon and that HODLers with diamond hands suffered significant financial losses.
Here’s what I think about HODLing:
Only persistent digital currencies that can increase in value over time are compatible with HODLing. That promised trip “to the moon” becomes a deep-sea plunge with no return ticket when you HODL one of the transient cryptocurrencies.
In an ideal world, you wouldn’t ever put money into any of these money-wasting cryptocurrency schemes. In actuality, you’re better off selling a few cryptos before they consume a significant portion of your capital.
Conclusion: What Does HODL Mean
So, HODLing cryptocurrency is not a winning ticket. When combined with a thorough study of the value and long-term prospects of your cryptocurrencies, it’s a healthy component of a prudent cryptocurrency investing approach. A long-term buy-and-hold approach helps you control your emotions and maintain a long-term focus, which gives you more mental space to make wise investment decisions.
Most of us will perform better with a thorough HODLing portfolio than with a narrow-minded day trading strategy.
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