What Is HODLing
Many of you may have been familiar with the term HODL in the crypto community. HODL is the purposefully misspelled version of Hold, used for an acronym of ‘Hold On for Dear Life’. HODLing has become famous in the crypto community, not only because it is great investing advice, but to combat Cryptocurrencies' naturally volatile nature.
HODLings principles come from times far before even Bitcoin existed, following the basic principle; It is likely that almost all traders, will see a greater return on investment by simpling holding the asset, than trading it. A classic example is Warren Buffet’s bet against several hedge fund managers that they could not beat the market by cherry-picking stocks. He was right.
This principle crosses over greatly to a much more volatile asset class, the digital asset space.
When the term was invented, by forum poster ‘Gamekyuubi’ misspelling hold all the way back in 2013. If an investor was to follow his advice when Bitcoin was trading at $100, they would have more than 300x their initial investment without ever touching it, proving the art of Hodl. For reference, over the same period, an index fund would on average have appreciated 110%, assuming a historical 10% per year average.
Why People HODL
Simply put, investors in crypto believe in HODLing for two reasons:
They have faith that over an extended period of time, their asset will increase in value overall, regardless of massive periods of volatility .
They believe simply HODLing will produce more gains than trying to time the market.
However, when discussing why people HODL we must look at how to HODL for a beginner in the crypto and digital asset space. Unlike the stock market, there is no mainstream ‘index fund’ equivalent for cryptocurrencies, forcing investors to make their own speculations on specific coins and tokens instead of following the top 100 coins by market cap, for example.
Naturally, this opens investors up to the risk of huge speculation on a mostly unknown and misunderstood asset class. For this reason, as a crypto beginner, you should consider HODLing ‘Blue Chip Crypto Coins’. Currently, a blue-chip cryptocurrency requires a market cap larger than $2bn and often requires a historically good price chart, such as Bitcoin and Ethereum. Blue-chip crypto coins are often pivotal in the crypto space, such as Ethereum's ERC-20 blockchain system, making them a safer investment for beginners to HODL, eyeing long-term potential and safety.
The cryptocurrency space is still extremely new and it’s likely most coins around now will not be around in the future, so choosing the correct coins and projects to HODL matters for long-term success. Remember, the cryptocurrency market does not have a proven track record of over 100 years like the stock market, so hedging your bets on the largest coins now would be most experts’ advice on beginning to HODL crypto.
What Should Beginners Be Looking for in Projects to HODL
In order to be able to HODL a cryptocurrency, you must believe in that cryptocurrency and the value it brings in the long term. Not all successful cryptocurrencies are backed by strong use cases, like meme or community coins, and this will reflect in their volatility and may not attract extremely long term holders or maximalists.
The Importance of Having an End Goal
The cryptocurrency scene is still extremely new and most see lots of potential still to come, but this does not mean that all coins and tokens will continually increase in price. For HODLers, this may be bad news, as many newcomers in the market may assume every investment has a massive 100x potential, but that simply isn’t the case. This is why it’s important to have a game plan.
For example, if a beginner HODLer decides on Bitcoin as their main HODLing, they must be realistic about their potential gains: They will never realize their profits if they are expecting a 100x return. What are some of these goals?
Do you have a target price that you are waiting to hit?
Is there a price I can take my initial fiat investment out and still feel comfortable?
Will I be able to sell when the time comes
When the time comes to sell several years down the line, reflecting on your goals will help realize profits and understand that it is better to leave the last 10% to the rest.
How To Properly HODL for a Beginner
Although it may sound simple, many beginners often make many mistakes as they begin thinking about a HODL strategy to follow.
Just like HODLing, those looking to realize their profits in five, ten or even fifteen years should not be bothered with timing their entry into the market, but bothered about how much and how early they have entered.
Understanding The DCA principle
To effectively HODL, beginners must understand the importance of Dollar-Cost Averaging and how it pairs perfectly with the HODL philosophy, especially for cryptocurrencies.
Repeatedly and systematically entering the market, regardless of price, over a long period of time
Dollar-Cost Averaging attempts to reduce volatility with repeated entries over a long period of time, creating an average entry price if you ever stop buying the asset completely. The effectiveness of this strategy is profound and when utilized properly can remove almost all emotions away from investing, usually for no effort at all. When following this strategy, the accumulation of your crypto of choice is the only metric that happens.
Is That All There Is to It?
Unfortunately, no. Like many investing philosophies or mindsets, the importance of sticking to your plan may be as important as having a good plan in the first place. Most investors are likely to experience emotions of FOMO at least once in their investing career, usually a lot more than that. Fear Of Missing Out is a common problem in today's society, being especially rife in the cryptocurrency world. With such large volatility and speculation all around you, FOMO cannot help but start to sink in. HODLing is a long-term strategy which requires patience and consistency, avoiding FOMO can be key to many beginners in the crypto world.
Tips for not giving in to FOMO
Zoom Out! Constantly inspecting and checking the charts of your portfolio and other coins you haven't invested in can greatly increase your chances of experiencing FOMO, and jumping at a bad opportunity. Zooming out and recognizing how insignificant daily price changes are over a 1,2 or even 5 year period helps push a much-needed perspective.
Set up recurring payments: To consistently exchange fiat for your cryptocurrency of choice, recurring payments can reduce the chances of impulsive trades and speculation as your Dollar-cost averaging is now automated.
Lastly, beginner holders who want to hold their crypto for a very long time, or those that are more privacy inclined should invest in a ledger.
A ledger is a type of cold wallet on which you can physically store your crypto on. With a longer process needed to sell or exchange cryptocurrencies on ledgers, you will reduce your FOMO and make it more likely that you will HODL for the long term.
Ledgers are also much more secure than ‘hot wallets’, that are used on centralized exchanges, with the added security bonus of having exclusive access to your coins.
Conclusion to HODLing
So, after picking a good project and creating realistic goals, have them put away in a secure ledger, and you are well on your way to becoming an expert HODLer. The most important principle of the HODL philosophy is to not focus on short term gains, always zoom out and re-focus on the bigger picture. You’ll also save yourself a lot of stress in the process.
Good luck and happy HODLing
