This post was written in Aug 2018.
What is hodl in the crypto world and its advantages
Saving is all well and good, but can you imagine being able to save and at the same time earn a profit for it? In the crypto world, everything is possible, and this is thanks to the investment strategy called hodl.
The world of cryptocurrencies has been configured as an ecosystem parallel to reality, with new resources, both financial and language, completely independent of the real world. Thus, in addition to a new form of payment, it has also created its own language and its own concepts.
In order to be able to circulate and participate actively within this ecosystem, it is necessary to know all these languages and resources that have been created within it. Today we are going to talk about what hodl is and what are the advantages that this strategy can bring.
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Brief history of hodl
The origin story of this concept is quite peculiar. In 2013, a year where Bitcoin was suffering huge losses and drops in price, a BitcoinTalk user, GameKyuubi, drafted a thread which he titled as follows: "I AM HODLING". In this thread, he explained that due to Bitcoin's large drops, he was going to keep his cryptocurrencies in a wallet and not sell them even if the price continued to fall. He also explained that he had made a typo, as he incorrectly used the English verb hold, which means to keep, and instead put hodl.
Thus, a large number of memes appeared in reference to that user's words, and people began to call this strategy making cryptocurrency hodl. Bitcoin investors thus adopted the expression Hold on for dear life to refer to holding their cryptocurrencies regardless of the state of the market.
What is hodl?
The answer to the birth of this concept is the extreme volatility that exists in the cryptocurrency market. The crypto market is known for being very volatile, which can be a big problem and cause huge losses to cryptoasset investors. Many of these investors would take advantage of these sharp rises and falls in the market to make numerous trades in short periods and make quick profits.
However, there are others who bet on another type of strategy. One in which long-term profits are sought, trying to get the maximum benefit from the cryptocurrencies they have. This new form of investment would be known as hodl or cryptocurrency holding.
In this way, hodl becomes a term that is beginning to be used in the world of cryptocurrencies to refer to the action of maintaining a position in a digital asset or virtual currency, despite market fluctuations.
Investors are confident that, during this long-term strategy, the price of the cryptocurrencies they are holdover will rise as the adoption and use of these coins increase.
Thus, cryptocurrency holding is defined as a long-term investment strategy that focuses on acquiring and holding cryptocurrencies in a digital portfolio or wallet. The objective of the holding is to generate profits through the revaluation of the assets you keep in the wallet, as well as the income derived from the exploitation of cryptocurrencies, such as dividends or interest.
This strategy has proven to be one of the safest and most profitable when it comes to obtaining economic benefits.
Advantages of hodl
This strategy has been configured as one of the most beneficial if you have in mind to obtain long-term profits. Not only is it an excellent alternative to other strategies, but it also offers an advantageous solution to one of the main problems in the market: the volatility of cryptocurrencies. Moreover, it is one of the most popular strategies because of the advantages it can also bring to every investor who focuses on this strategy:
- You control investment risk. By holding cryptocurrencies, you can control your investment risk by limiting the number of coins you buy and hold in your portfolio. Buying and holding a limited amount of cryptocurrencies allows you to reduce the risk of losing your entire investment in case the price of the coin suddenly drops.
- You take advantage of market volatility. You can take advantage of market movements to maximize your profits. For example, if the price of a cryptocurrency suddenly rises, you can sell your coins and make a profit. Likewise, if the price of a cryptocurrency falls, you can buy more coins and increase your portfolio.
- You get long-term gains. If the price of cryptocurrencies is going up, you can make long-term gains. This is because, by holding your coins in your portfolio, you are investing in the cryptocurrency for the long term.
- Greater control over your wallet. The holder has full control over his portfolio. This means that he can decide when to buy and sell, and is not tied to the investment timelines of the mutual funds or the decisions of the managers.
- Greater flexibility. This technique offers much more flexibility to the holder when investing. For example, if a cryptocurrency rises in price, the investor can decide to sell and take profits, or hold the position for more profits in the future.
- Lower commissions. With this strategy, the investor only has to pay commissions for the purchase and sale transactions he/she carries out. This is much less expensive than investing in mutual funds, which usually charge high commissions.
- Yield potential. As we have already mentioned, cryptocurrencies have a high yield potential. This is because their price can rise or fall significantly in a short time, so the investor can make significant profits if he invests appropriately.
Nevertheless, cryptocurrency trading requires patience, so be aware that if you want to bet on this strategy you will have to wait a long time to make a profit. However, if you are patient, the possibilities that accompany this new way of investing are abysmal. In contrast to this strategy, there is another one with which investors can often be confused: staking. Check out this post to find out what this investment method consists of.
Do you want to jump into the crypto world? Cryptocurrency holding is a very profitable alternative even for beginners.