HODL first surfaced on the Internet in 2013, when a user accidentally misspelled ‘hold’. This misspelling took the crypto world by storm and is now one of the most famous phrases in the crypto world. While the term’s origin story gives it meme status, HODL also has a deeper meaning. It’s now a popular trading and investment strategy that crypto enthusiasts still find helpful.
Understanding the HODL Meme
HODL began in December 2013 with an investor called GameKyuubi. Bitcoin had just fallen a whopping 39% in value, going from $716 to $438. Compared to the crypto’s performance earlier that year, rising from $15 in January to $1000, this was very worrying. Bitcoin investors were distraught, wondering if this price decline was the downfall of the crypto.
This was especially true for GameKyuubi, who went to a Bitcoin forum to vent his frustrations. Amidst a crowd of traders debating whether they should keep or sell their Bitcoin, GameKyuubi was certain. The trader announced that he was ‘HODLING’, in all caps! The trader continued on to explain why he was holding, “It’s because I’m a bad trader and I KNOW I’M A BAD TRADER. Yeah, you good traders can spot the highs and the lows … Just like that and make a million bucks sure no problem bro.”
With the funny misspellings and the upbeat attitude of GameKyuubi’s explanation, his rant became famous with traders. The trader’s determination to keep holding Bitcoin, even as its price fell, gave many others the confidence to do the same. GameKyuubi also gave more explanation, “You only sell in a bear market if you are a good day trader or an illusioned noob. The people in between hold. In a zero-sum game such as this, traders can only take your money if you sell.”
With HODL now a mantra among traders, it gained a new meaning in the crypto verse, ‘hold on for dear life’. This typo, and the strategy of holding crypto throughout price fluctuations, have remained popular ever since.
What does HODL mean as an investment strategy?
With HODL also used as an acronym, the term describes the strategy of holding onto assets throughout severe price volatility. It is a passive trading strategy that requires minimal action. This is a somewhat risky strategy - once your cryptocurrency drops in value, there’s no guarantee its price will rise again.
Still, it’s not unheard of. Many long-term traders with experience in crypto find holding their assets through market fluctuations preferable.
With the HODL strategy, traders keep their assets for over a year, to multiple years. Traders using HODL can’t let market sentiments, price swings, or other crypto news impact their decision to sell. It works opposite to ‘timing the market’. This is when traders watch market changes closely, waiting for the perfect time to buy or sell. These short-term movements often result in smaller returns, while HODLing for years can bring in a larger profit.
Cryptocurrency trading can require patience and the willingness to take systemic risks. Countless traders panic and sell after their crypto declines, suffering major losses. Holding your crypto, instead, can offer several unique benefits. Just like any other investment strategy, HODL comes with its own inherent risks, as well.
Pros and cons of the HODL strategy
Pros of HODL
Great for beginner traders
Many trading strategies require lots of effort, knowledge, and action. Day trading, high-frequency trading, or arbitrage are some examples. If you’re still a crypto amateur, not only are these complicated strategies time-consuming - they’re risky. With HODL, you need only buy an amount of crypto and wait for an extended period of time. There’s no need to spend hours reading about crypto news or technical elements!
Doesn’t require market predictions
Unless you’re a market expert, it’s very difficult to predict price movements. This is even harder when trying to accurately predict short-term changes. With HODL, you can rely on a long-term vision for your crypto.
Subject to long-term capital gains tax
Cryptocurrency, like other assets, is subject to taxes. Crypto gains made in less than a year are subject to short-term capital gains tax. However, if you hold your capital gains for over a year they are taxed at a lower long-term rate. In 2023, you may even qualify for an amazing 0% long-term capital gains tax! This can keep your profits higher, allowing you to pay less on taxes.
Reduces risk of impulse decisions
HODL requires patience and logic to carry out. When prices change, emotions like fear, greed, or excitement can make traders act without thinking. By using the HODL strategy, you can close yourself off from making impulsive decisions.
Cons of HODL
Thanks to many CeFi and DeFi platforms, it’s possible to use crypto while still HODLing. Holders can lock their cryptos to earn interest through staking or even use their crypto as collateral for a loan without having to sell their crypto. That being said, the options are limited and while you are holding, there is only so much you can do.
Suggested reading: CeFi vs. DeFi: Why the World Needs Decentralized Finance
Requires more time
Many traders join Bitcoin to take advantage of the significant short-term price changes. With HODL, you’re signing up for a long commitment. This renders you unable to make smaller profits off the quicker market movements.
Just like any other strategy, HODL offers no guarantee that you’ll make a profit. While you can have a high possibility of returns from your crypto, there’s never a 100% certainty. The crypto market could crash, or it could take longer than expected to see price increases. Cryptocurrency is a volatile asset and has only just over a decade of data to study. Other assets, such as stocks or real estate, offer a long history and track record.
How do you pronounce HODL?
There’s no official pronunciation for HODL since it’s a made-up term. When speaking about HODL out loud, you can pronounce it “ho-dull”. This pronunciation is most usual, and almost rhymes with the word modal. You can also just say ‘hold’, or pronounce each letter of the acronym.
Alternatives to HODL
What are your alternatives to HODLing your cryptocurrency? There are many other strategies that traders can try out instead of, or alongside HODL.
Crypto is a great investment, but it’s also a versatile payment method! More people, businesses, and organizations accept virtual money in exchange for goods and services than ever. You can buy anything from other digital assets, cars, technology, insurance and much more using cryptocurrency. Many forms of crypto are also anonymous, secure, and instantaneously exchanged.
There are several forms of crypto trading, including swing trading, high-frequency trading, day trading, and automated trading. All these strategies offer different advantages. Most require more action than HODL, as you have to keep track of price movements and make quick decisions. With automated trading, you can set up a bot to make trades for you.
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You can create your own cryptocurrency, including its exchange and community. To build your own unique crypto, you can choose a platform - such as Solana or Ethereum - and consensus mechanism (which validates the crypto blocks in its blockchain). With the right hardware and coding experience, anyone can make their own crypto to exchange.