Information

What is Hodling? The Story Behind The Emergence Of The Term “HODL”

HODLing, a strategy emerged out of a meme, is now a popular concept in the world of cryptocurrency. Back in 2013, a Bitcoin investor accidentally introduced the term while chatting on a Bitcoin forum. The background to this was at a time of drop in Bitcoin price.

The sharp drop in prices evidently was likened to havoc among investors, this folk decided not to sell his share and wrote a post with the title “I am HODLing”. This was instead of HOLDing. This misspelling got the attention of the Bitcoin community and ultimately working backwards turned into a suggestive acronym:  Hold On for Dear Life.

At present, the term HODLers describe crypto investors that buy and hold their crypto position, regardless of the market price. Whether the price goes up, down or sideways, these investors stay firm having their confidence in the long-term value of their asset.

To the typical crypto investment community, the concept seems like the height of insanity. The HODLers tag has become a funny term for people holding on to their imaginary money, not knowing the value for the price. However, those who have witnessed the recent Bitcoin volatility now know that the technique can actually fit perfectly in certain situations.

Buy, Hold, and Wait for a Price Surge

This buy and hold strategy is the only valid crypto investment strategy for some people out there. In the last year to March 2019 a 46% slide in Bitcoin prices has been witnessed, causing 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. Analysts will tell you that the process of HODLing on to your investment may make you look miserable at first. But it offers the best return at the end if the market turns a corner

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 last five years, the skyrocketed value of Bitcoin makes it dominant in the portfolio. However, for an investor, having 90% of a portfolio as 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 then can be spread among lower risk assets to leverage on risk and return. This is the recommended crypto trading signals for anyone who manages a personal or corporate portfolio. Armchair investors might think otherwise, but this is proven.

Conclusion

Analyzing the trend in the past few years, HODLing can be confidently claimed as the most appropriate Bitcoin investment strategy. Even for a highly volatile cryptocurrency like Bitcoin, this surely works. In a world where you cannot put a tab on the ups and downs, holding on to your investment is the best approach.

Holding on to the investments doesn’t mean that you can idly sit down and watch the market passively. You need to keep your portfolio updated as per the changing trends. The only problem so far with this technique is usually when investors fail to maintain a balanced portfolio. In crypto investment, having a systematic and well-disciplined approach is very crucial to long-term success.

Also Find: Beginners Guide | Trading Guide | crypto Interesting Stories

Tags
Show More

Qadir AK

Qadir Ak - Co-founder of Coinpedia Blog - His interest as crypto Author, Editor, Speaker at cryptocurrency conference has made him known as passionate blogger and startup in Asia.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

5 − four =

Back to top button
Close
whatsapp