What Is Hodl Coin?
“HODL” is often thrown around a lot in the cryptocurrency community. Since it’s often used, it has become the slang term new investors usually learn first.
HODL refers to an investment strategy wherein investors muster up the determination not to sell their coins, despite a plunge in the market. When a price plunge occurs, investors often see the asset negatively. However, the ones implementing the HODL strategy will continue to hold their coins and not sell.
HODL has since become a strategy used by people who admit they do not have the skills to make short-term trades – such as scalping, day trading, or swing trading. The term HODL has also inspired the creation of a similar period often, BUIDL, commonly used by the cryptocurrency community to refer to the many applications being built within the blockchain industry.
The Origin of “HODL” – A drunken origin story
What was originally a drunken typo posted on the 18th of December 2013 by a user named ‘GameKyuubi’ on BitcoinTalk, “WHY AM I HOLDING? I’LL TELL YOU WHY,” their message read (this time spelling “hold” correctly). “It’s because I’m a bad trader, and I KNOW I’M A BAD TRADER.” He said that while professionals stand a chance to make money in the short term, particularly in a bear market, the poster was better off doing nothing. This has become a fundamental term in 2020’s cryptocurrency market: “I AM HODLING.” Since its original posting, the cryptocurrency community has created several meanings for the typo, with “Hold On for Dear Life” being the most popular.
The Differences Between Hodling and Trading
HODL and Trade have their own advantages and disadvantages.
A trader is someone who buys and sells assets frequently in an attempt to make profits from short-term movements in prices.
On the other hand, a holder buys assets and holds onto them for a long time, hoping to profit from the asset’s appreciation in value over time.
There are several critical differences between traders and holders when investing in assets.
- Firstly, traders focus on short-term price movements, whereas holders typically care more about long-term price trends.
- Secondly, traders typically employ more sophisticated investment strategies like technical analysis or leverage, which allow them to potentially maximize profits (or losses) compared to hold with less trading experience or knowledge of market dynamics.
- Finally, traders may be more comfortable with risk and uncertainty than holders, who often prefer a more stable investment environment. Despite these differences, both traders and holders can be highly successful in their rights, depending on their individual investment strategies and preferences.
Pros and Cons of Hodling Coins
Pros Explained
Is not dependent on market timing: Short-term trading relies on market timing, predicting when prices will rise and fall. However, unless you’re a market expert—which most people aren’t—it’s unlikely that you’ll be able to foresee every market shift precisely. HODL eliminates the danger of market timing.
Long-term capital gains taxes apply to profits: Capital gains on assets kept for more than one year are taxed at a lower rate than those held for less than one year. Your earnings will be taxed at a reduced rate if you use a HODL plan.
Buy-and-hold investing has a proven track record: Which is why many financial professionals encourage it. Why investors must understand the distinction between stock investment and cryptocurrency investing, buy-and-hold investing has generally beaten out.
Cons Explained
Although considered a safe investment strategy, they also have many potential risks, such as:
- 1/ Psychology
This is the most significant factor that causes your coin-holding strategy to fail. Typically, FOMO (fear of missing out) will make you make hasty buying decisions. One thing is for sure, when you get caught up in the FOMO wave, you will buy coins at the bad price zones. This dramatically affects your profits in the future.
Besides, the cryptocurrency market is often affected by news and unofficial information. The spread of negative news and rumors can create anxiety and panic among holders. This can affect your investment decisions.
Therefore, to face the psychological factor, you need to carefully study the project and outline a clear coin-holding plan, such as holding time and selling price target, to avoid making emotional decisions. Patience and confidence in your decisions are critical to helping you navigate emotional turmoil and achieve long-term results.
- 2/ Price volatility
You probably know that the cryptocurrency market often experiences price fluctuations. This will create fear and psychological pressure. When the price of the coin you hold drops, it can cause anxiety and panic, especially for those new to the market.
So, back to the psychological story, you need to control your negative emotions and follow the original plan outlined.
- 3/ Risks related to the project
There are many risks associated with projects, such as dead projects, poor quality projects that should be deleted on many exchanges, projects that scam investors or are attacked by hackers causing heavy losses to development funds, etc. These factors can make you lose all your capital. Besides, legal issues can also make things change quickly.
To be able to avoid or run away in time to minimize losses, you need to update the news about the project and the market regularly. At the same time, you can refer to experts’ analysis of the project you are interested in.
Instructions to hold coins safely
- 1/ Choose a reputable project
This is the first crucial step, as it will directly affect your investment and the profit earned in the future. For holding coins, you should choose highly secure projects with a long development history, such as Bitcoin, Ethereum, BNB, etc. Although the profitability of these types of projects may not be as high as hidden gems, new projects with small capitalization, the risk will be much lower in return.
When considering holding a project’s coin, you need to keep the following points in mind:
- Development team.
- Technology potential.
- Goals and vision.
- Investor and backer of the project.
- The level of activity of the project as well as the community.
- Finance and development planning.
- Competitive advantage.
- 2/ Choose a safe place to store your assets
For a long-term holding strategy, you should store assets in cold wallets such as Ledger Nano S or Trezor …to avoid the risks of attacks or online threats. In addition, you can also store on non-custodial wallets such as Metamask, Trust Wallet, C98 Wallet, etc.
However, when using these wallets, you need to take good care of your recovery phrase (Seed Phrase), as they allow you to recover your wallet if you forget your password. Additionally, keeping your software up to date would be best to ensure your wallet always receives the latest bug fixes.
In particular, you should not hold assets on cryptocurrency exchanges. Because this place is always the top target that hackers target.
- 3/ Use two-factor authentication (2FA)
Using two-factor authentication for crypto wallets will increase the security of your assets, making it more difficult for an attacker to break into your account intentionally.
How to optimize profits when holding
1/ DCA (Average buying price)
To optimize future profits, you should first buy coins at as low a price as possible. However, identifying low-price zones is difficult, as they require good technical analysis knowledge. So for “horizontal investors,” like most of us, the simplest method to optimize the buying price range is the DCA strategy.
DCA means average purchase price. With this strategy, you will split your capital and buy coins at different times. Example: You plan to spend 10,000 USD to buy Bitcoin and split it into 5 separate purchases. The first time you buy Bitcoin at $25,000; 2nd time, you buy at 27,000 USD; 3rd time, you buy at 20,000 USD; 4th time at 16,000 USD and 5th time at 10,000 USD. So your average Bitcoin price after 5 purchases will be $19,600.
Therefore, the reasonable division of the purchase capital when DCA will help you buy the coin at a low price.
2/ Staking – Farming
Some crypto wallets allow users to stake or farming specific cryptocurrencies. If you hold this group of coins, you can take them to stake or farm for more passive profit.
But it should be noted although farming offers a higher percentage of profit than staking if you are not too knowledgeable about them, it is best not to participate. The reason is that the risk of farming is much higher than staking.
3/ Launchpad
When holding some exchange coins like BNB, MX, BIT, etc., you can join the launchpad of the exchanges. This is considered an investment method with compound interest.
Who success in holding coins
- Changpeng Zhao (CZ)
The most famous of these can not fail to mention the owner of the Binance exchange – CZ. In an interview, he said he bought a large amount of Bitcoin in 2014 with BNB, and most of it is still held by him to this day. According to CZ, a significant portion of his net worth was created by the growth of these two assets.
Although the cryptocurrency market has dropped significantly in 2023, as of June 2023, according to Forbes rankings, CZ is the 163rd billionaire in the world.
This success is the most evident proof of his own saying:
“If you can’t hold, you won’t be rich”.
CZ – Binance’s CEO
- Vitalik Buterin
An equally famous figure is the father of Ethereum – Vitalik Buterin, who has been named the youngest cryptocurrency billionaire in the world. According to the number revealed by Buterin, he holds more than 3,000 ETH. When the market surged in November 2021, his ETH was estimated at more than 1.6 billion USD.
Besides, there are many other characters, such as the Winklevoss billionaire brothers, Tim Draper, Brian Armstrong, etc. These characters have one thing in common in their portfolio, they all deduct a significant amount for the coin-holding strategy. Another name in the village of veteran coin holders is Satoshi Nakamoto – the man who created Bitcoin. Although it has disappeared since 2010, the amount of BTC in this character’s hand can be up to 1.1 million dong. Based on the data, many analysts say that Satoshi has not sold a single Bitcoin.
HODL FAQ
- 1/ When should I hold coins?
Holding the coin when the market enters the downtrend period would be best. Note you should split your investment and buy at different times to optimize the purchase price; this buying strategy is also known as DCA.
- 2/ Which coin should I hold?
It would be best to choose coins belonging to projects with a long development history and high safety, such as Bitcoin, Ethereum, BNB, etc.
- 3/ How should the holding portfolio be allocated?
You shouldn’t put all your eggs in one basket, so you should split your investment. Here are the allocations you can refer to:
- 80% is for highly secure coins like Bitcoin, Ethereum, etc.
- 20% for hidden gems or low-cap coins.
Summary
BTAGuru introduced you to the coin-holding strategy through the article and gave methods for successful holding. I hope the above information will help you have a more suitable investment direction. Please see the article for reference, as it is not investment advice.
