You might have heard many crypto enthusiasts advising do not fall in FUD, just HODL your cryptocurrency. If you are a new user and just entered the space, then you might have come across the terms like FOMO, FUD, HODL.
Do you ever wonder, what is HODL? Rather why it is not HOLD?
Let’s go back in history a little to know more.
What is HODL?
HODL became a blessing in disguise for the crypto community after a person miss-spelt it without being in consciousness. It basically means just to buy the cryptocurrencies and not selling it in a hurry but hold them with you. In simple words, it refers to a buy-and-hold strategy.
Well, it was just miss-spelt by a person, which outspread within the crypto space within an hours time. It all started with a blog post on Bitcointalk forum when a bitcoin investor ‘GameKyuubi’ wrote ‘I AM HODLING’ on December 18, 2013.
Bitcoin which maintained its price below $200 through 2013, saw a sudden rise in the last week of October 2013. Apparently rose to nearly $1000 by the first week of December 2013. However, it dipped down to somewhere around $600 on 17 December 2013 and the whole market switched on the ‘PANIC Button’.
As it was the first-ever steep dip of Bitcoin, the hurried investors started selling off their holding and then the user GameKyuubi posted a blog which emerged as one of the best strategies to deal with cryptocurrencies.
BUY-And-HODL Stratergy
As mentioned HODL entered the crypto space by mistake as the investor was very baffled with the panicked investors just selling off Bitcoin. He wrote that, when the price crashed, the traders in a hurry sell-off all their bitcoins and the smart traders buy them back and make in millions of profit.
Therefore his analysis turned out to be a profitable strategy within the crypto space. In the recent past during the 2017 bubble or later, Bitcoin prices have been very volatile, which caused great panic among investors.
As at when the term HODLing was introduced, the prices had already fallen to 24.67%. Since then, the Bitcoin prices have risen up to 1338%, though not through a straight path but passing through all the ups and downs.
So, a person who adopted the HODLing strategy back then had invested $10,000 in Bitcoin, his investment would be worth $143,829 by now. Such is the minimal effect of hodling on the average bitcoin investor. While this is not without its dangers, anyone who can be unmoved during a market tsunami is sure to reap the rewards of a price surge.
HODLing in cryptocurrency has become one of the important strategies of Bitcoin holders. It is also a major reason why Bitcoin remains as the most valuable Cryptocurrency in the market.
Although the person that adopted this HODLing strategy for Bitcoin investment got the rewards, it is not easy to stare down the market. However, you need to have your analysis very strong to apply the BUY-and-HOLD strategy.
Uncertainties and Determination
For Bitcoin so far, a really volatile asset, choosing the asset carefully and then holding on to it in the long-term has seen to pay off really well. What the newbie needs to know is the fact that financial markets have shown the world a pattern. Prices will always rise and fall for any underlying asset. But you can be sure of an upswing, if not now, but later.
Some of the HODLing investors may claim that they invest in the market by understanding the strategy. They claim to be investing in what they know. Although there are several theoretical models to explain the market mechanism, the timing cannot always be predicted. It is nearly impossible to predict market movements.
So, when some investors claim to have figured out the market mechanism, they are actually fooling themselves. As cryptocurrencies for global financial market index shows, bitcoin is volatile with high-risk and high returns. Yet, Hodling is a level-headed approach to investing in any volatile market.
The major problem raging till now for the HODLers is an unbalanced portfolio. Having invested in the cryptocurrency and holding on to it doesn’t allow you to sit lazily and watch the market trends. You have to put your effort in order to gain your share of the benefit.
In order to uphold a reasonable portfolio and reduce the adjustment risks in returns, there is a pathway. The investor needs to rebalance his portfolio from time to time.
This rebalancing may force many investors to buy at low prices and sell when prices soar just to have a worthwhile return. The question is -when will prices soar? This is the unknown part of the equation. The waiting period can be short or long, eventually, prices will soar again.
Say, for example, if an investor’s portfolio has a ratio of 50% stocks, 40% bonds, and 10% Bitcoin, for almost five years, the skyrocketed value of Bitcoin makes it dominant in the portfolio. However, for an investor, having 90% of a portfolio as a Bitcoin investment is absolutely ridiculous. Considering the high volatility of this cryptocurrency, there is an imbalance
The risk factor imbalance here would make an investor lose so much when bitcoin prices stay low for longer than expected. Since the turn of the market is not accurately determined, the investor has to sell when prices soar.
The returns can be spread among lower-risk assets to leverage risk and return. This is the recommended crypto trading signal for anyone who manages a personal or corporate portfolio. Armchair investors might think otherwise, but this is proven.
Concluding Note
In the world of uncertainty and volatility, a new strategy no matter what was laid by mistake, but often proved a profitable one. HODL cryptocurrency or HODL Bitcoin became an immensely popular subject henceforth. This might also have helped the market to regain from the crash then and to be less volatile or more stable now.