Just HODL It – what is Hodl in the cryptocurrency market
By Yuliia Rokytska 1889 15 Jul 2022
Hodl in crypto is a strategy of holding cryptocurrency against the market situation. This article analyzes the term hodl, how it emerged and what it means.
What does HODL mean?
HODL is an investor behavior in the crypto market based on the classic long-term “buy and hold” strategy.
The history of the term HODL originates from an event that took place on a cryptocurrency forum in 2013. One user accidentally spelled “hodl”, instead of “hold”, when informing other users that he would hold bitcoin as long as possible, despite the falling price. Since then, the misspelling became a meme, then a slang word, and after a while, it caught on as a term for a long-term holding strategy.
In addition, traders turned the word HODL into an acronym, which means Hold On For Dear Life.
What do you need to know about the HODL strategy?
Hodl is the opposite of day trading and price speculation. Those who follow this trading method do not pay attention to bearish short-term declines and do not monitor the chart every half hour.
The strategy is best described by an incident that happened to Norwegian student Christopher Koch. When bitcoin first appeared, he decided to buy 5,000 BTC and successfully forgot about it. Four years later, the cryptocurrency went up to $260. There was more and more information about it in the media. This made Christopher remember about the investment. And he was lucky enough to find the key to his wallet to withdraw funds.
This does not mean you need to forget about investments, you can remember about them. If you want to be a hodler, the main thing is to limit yourself from selling during unstable situations, negative moods, volatility, and market collapse.
However, Hodl is not suitable for all assets. You have to be confident that the digital currency will actually survive the fall and rise again rather than fade into oblivion. Therefore, you should conduct fundamental and technical analysis before choosing a hold strategy for a particular cryptocurrency.
Bitcoin is considered by many to be an appropriate option for this. For example, the big hodlers with the wealthiest bitcoin addresses don’t withdraw their assets for 5 years. One of those has 79,957 BTC on it. In general, HODL is used by investors who don’t like to monitor the market constantly and aren’t looking for quick ways to make a profit.
What are the advantages and disadvantages of the HODL strategy?
The HODL strategy is helpful in many ways but has drawbacks.
Holding a digital currency for an extended period often eliminates the risks posed by a sudden and unexpected decline in value. One who hodles rarely sells crypto at a loss, as s/he simply waits for a new high after a long fall to fix the profit at the peak value.
Therefore, s/he is not exposed to the stress that day or mid-term traders experience when they monitor prices. Neither does s/he spend a lot of time studying charts and analyzing the situation since relying on annual and five-year data is sufficient for long-term investing.
However, these advantages can be pretty spendy given the maintenance of sufficient liquidity and other exchange fees.
For investors with a small deposit, this can be a cumbersome process.
In addition, crypto hodl may not be as profitable as speculative trading. Active trading offers higher profits if you have the necessary skills, the right strategy, and sufficient trading skills.
Yet, in both cases, it is essential to identify when the price of the cryptocurrency is at its peak to sell it before the quotes begin to decline. This will allow fixing a higher profit than when holding during a downward trend.
What is bitcoin hodl waves?
Bitcoin HODL Waves is a bitcoin diagram based on blockchain data that shows the number of circulating cryptocurrencies. BTCs are grouped into different ages, each with a different color. Thus, you can see the aggregate supply of a cryptocurrency in the market, divided by age categories.
The diagram also shows investors’ actions in relation to their assets. When the number of newer cryptocurrencies increases dramatically, it's time for older BTCs to be sold off. Usually, this happens as the price rises. History shows that quotes tend to reverse after that. Therefore, those who buy coins at the end of an uptrend often suffer losses.
Bitcoin HODL Waves is used to trace the market cycle of an asset and see when more professional investors make sales to newcomers (a sharp increase in red lines). It gives some understanding of what period the value of BTC will reach its maximum point. That's why the diagram is used as a price forecasting tool.
I hope this article has answered your questions and helped you to understand what Hodl is.