”Hold on for dear life” seems a motivational quote until you find it as a crypto industry term. HODL is in the list of crypto slang which also includes FUD, FOMO, and so on.
HODL is one of the terms that came to be as a result of the success of the first cryptocurrency, bitcoin. It is a term you need to get used to if you’ll be involved in crypto investment.
If you heard a story of a certain footballer whose name, ‘Michael Obi‘ was mistakenly spelled as ‘Mikel Obi‘ then this is a case like it. The word ‘hodl‘ was misspelled from ‘hold’ which later became an industry term.
In this post, we’ll explain the term ”HODL” for crypto beginners to understand like a 5-year-old. Before then, let’s get to know more about cryptocurrency.
What is Cryptocurrency?
Cryptocurrency is a digitally encrypted, decentralized currency that is not linked to or regulated by any government or central bank.
It is based on blockchain technology, which is a distributed ledger framework. Blockchain is a distributed ledger that is managed by a network of computers. It maintains an exact copy of the database and updates its records by consensus based on pure mathematics.
Bitcoin is the first cryptocurrency created which has led to the creation of others alike known as altcoins. Examples of these cryptocurrencies include Ethereum, Dogecoin, Ripple, Cardano, etc.
Cryptos are categorized as virtual or digital currencies. They were originally developed to provide an alternative mode of payment for online transactions.
Today, there are over twenty thousand crypto-assets according to CoinMarketCap.
What Does the Term ”HODL” Mean in Cryptocurrency?
HODL is a term derived from a misspelling of “hold” in the context of buying and holding Bitcoin and other altcoins. The acronym, HODL means ”hold on for dear life” and has become a strategy in crypto investment.
Many are ”hodling” cryptocurrencies for the future rather than trading for short-term profits. HODL has become a mantra for crypto enthusiasts. You can just hold on to that cryptocurrency when you own a crypto asset. It is a less risky approach for investors, especially in a bear market.
If you have decided to become a member of the crypto community, you need to see ”hodl” as a core tenet to have in your belief system. Cryptocurrency investors use the term to refer to buy-and-holding assets for a longer time horizon rather than making frequent trades.
The Origin of HODL
There is an interesting story behind the term ”hodl”. As stated earlier, it came to be as a result of the market move of bitcoin at a particular period.
The word “HODL” originated from a post on the Bitcoin Forum, a platform where investors can share their opinions about Bitcoin and the economy. A member of the platform with the username ”GameKyuubi” in 2013 wrote ”I am holding” as ”I am holding” in a post online.
The post was in response to a price plunge after bitcoin had witnessed a jump in price. The price surged from $15 in January of 2013 to over $1,100 at the beginning of December, which delivered a return of 7,230%. By mid-December, the price had fallen from $716 by 39% to $438.
GameKyuubi quickly made a post regarding the situation which had typos and upper cases just like his handle. The post which could be hardly be comprehended by readers pointed at the best strategy to use for bitcoin investment.
The author ended the post by stating that the best course was to hold bitcoin. The post by GameKyuubi soon became viral and a meme. The author later confessed that he had some whiskey which influenced his misspelling.
What is the HODL Strategy?
The Hodl strategy comes from GameKyuubi’s original post where he advised that it is best to hold on to coins rather than timing the market. Crypto beginners and investors can use this strategy for ‘fear of missing out’.
Long-term holders believe that cryptocurrencies will eventually replace fiat currencies. Holding a coin on a long-term basis helps them to skip the pain of the bear market while anticipating the next big move.
Based on these principles, the best time to HODL is now, always, and forever. A true believer would always hold on to their tokens, even if markets crash or become extremely volatile.
This strategy is important for traders and investors due to the volatile nature of assets. It can provide more safety to investors, as investors are not exposed to short-term volatility and can avoid the risk of buying high but selling low.
Is there any Risk with Hodling Cryptocurrency?
Despite the benefits of this investment strategy, it is not without risk. The prices of cryptocurrencies are very volatile. Investors may have to experience extreme ups and downs in their asset values.
For this reason, holders must have much larger risk appetites than other forms of investors. They must have sufficient capital capacity to avoid forced sales or meet unexpected liquidity needs.
Another huge risk is that the future of cryptocurrency is uncertain. Many nations of the world are yet to accept it for their citizens despite its mass adoption lately. Holding a token for the long-term might be the greatest loss if the asset value is dragged down or if no longer in existence.
The Bottom Line
Crypto beginners and investors must consider ”hodling” if they’ve decided to invest in cryptocurrencies. It is the best way to hold on to their dear life especially when crypto is down as it is today. As the future of cryptocurrency is uncertain, it is better to invest as much as you can afford to lose.