As a famous cryptocurrency term, HODL is not as simple as it seems. This article will guide you on everything about HODL and how to be a smart HODLer.

Do you know that cryptocurrencies and stocks have a lot in common? Just like stocks, you can buy cryptos, keep them, or resell them. But, a significant difference we can see is that crypto tends to have a lot of memes while stocks don't. One of the famous ones is the term "HODL" which you probably hear a lot and think that someone may have misspelled "hold". So, what does HODL actually mean in cryptocurrency?

hodl in crypto

 

What is HODL?

HODL stands for Hold On For Dear Life, a phrase used when someone buys and holds Bitcoin or other altcoins for a long period of time without any thought of selling them. This word started as a typo joke on the Bitcointalk forum in 2013 by a particular user who was drunk at that time. The members found it funny so they began to use it to show the state of HOLDing the cryptocurrency in the long period as opposed to selling it.

Any investor who buys and holds cryptocurrency is referred to as a HODLer. Yet, of the many HOLDers, there are some who truly believe that cryptocurrencies will replace fiat currencies and become a promising investment for the global economic system in the future. These kinds of HODLers are very loyal to their assets until the end. Despite drastic price swings, news, memes, or viral tweet from crypto figures on social media, persistent HOLDers are usually unaffected.

 

Is HODLing Crypto a Good Strategy?

You may be wondering whether the HODL strategy is really worth it. After all, as we all know, crypto is a new, highly volatile, and high-risk digital currency without a clear track record like the what stock market has.

To answer that question, let's go back to 2015 when the Bitcoin price was only $122 per coin. Now imagine what would happen if you bought Bitcoin in January 2015 and HODL it.

At one point on November 10, 2021, Bitcoin was trading at $69,000. In case you had purchased 10 Bitcoins which were still worth $1,220 in early 2015, your investment in November 2021 would be valued at $690,000, an increase of almost 60,000%!

Maybe your mouth is now gaping wide while rushing to buy Bitcoin. Hold on, as already mentioned above, HODLing crypto is extremely risky, because crypto itself is still not clearly regulated by any government in the world.

So, is HODLing crypto worth the hype? Well, there is no definite answer to that. Assuming that you hold onto the correct crypto whose price will increase in the future, then HODL is really recommended. Like with any type of investment, you should make sure that you are ready and familiar with cryptocurrencies first before HODLing.

 

How to be a Smart HODLer?

The crypto price fluctuates fiercely every day. Therefore, jumping in and out of the crypto market in a narrow time frame like what scalpers do is quite dangerous. You must have seen how the price of Bitcoin suddenly jumped 2 digits in just a matter of hours, not to mention those FOMO traders and panic sellers who cause wild swings in the price movements.

It is because of these factors that investors in the end shift to the HODL strategy to grow their portfolio. However, HODLers who lack discipline can feel anxious when prices start to fall, prompting them to act impulsively.

Emotionally, HODL is a tough method that requires patience and long-term vision to keep you on hold even when the market is volatile. For that reason, if you want to become a HODLer, there are important tips that can be taken into consideration in order not to lose money later.

 

1. Find Reliable Project

The first step to becoming a better HODLer is to find a coin that you truly believe will bring you a profit when holding it. Then, what are the criteria for crypto that can be entitled to be HODLed?

  • White Paper: Before you invest in any cryptocurrency, take a look at their White Paper. See who they are, their background, the purpose of creating the coin, and what solutions they have prepared. Most importantly, ask yourself if the concept makes any sense. If they talk more about technology than their business concept, you should get out quickly. Remember, you are not an engineer who invests in technology products, but doing a business that is reliable enough to make you reap abundant profits in the future.
  • Reputation: In preparation for HODLing, get to know the reputation of your crypto. Have there been negative reviews about the project in the past? In such a case, you should rethink since projects that have a history of scams have a tendency to do the crime again.
  • Performance: You can also dig deeper into how their project performs. Does the technology make sense and can be applied in real life? For example, you find crypto that could be used as a payment method, but the regulation where the coin was created actually prohibits cryptocurrency. Naturally, this kind of crypto is not approved to be HODLed. In addition, check how many tokens/coins are available, how many are already circulating in the market, and how big the market cap is.
  • Usefulness: Question yourself, what will happen to the crypto 15 years from now? Do you think the coin will be useful and influential for the financial world? If you can imagine this digital money growing rapidly over the next dozen years, then you are allowed to HODL.
  • Transparency: Maybe you've heard of companies claiming 50% of coins sold out within 2 hours of their Initial Coin Offering (ICO). Did it really happen? Or is it just noise marketing to create a sensation? Learn how transparent they are in disclosing information about the project.

 

2. Don't Leave Your Coin in an Exchange Account

Are you aware that HODLing in exchange is actually considered risky? While HODLing is the best strategy, leaving crypto assets untouched in an exchange account is a bit risky.

You must have read a lot of news where a number of investors ended up losing the capital deposited on some exchange platforms. Even in the case of Mount Gox, it takes years for the victims to wait for full compensation.

Security concerns aside, keeping crypto in the account means your asset doesn't grow when needless to say, you want to earn money from HODLing, right?

 

3. Stake Your Crypto

Then, what can you do to maximize profits when HODLing? You can start by staking. Staking has become a popular way to minimize the losses from HODLing. You can stake through a cryptocurrency exchange so that your crypto will later be used in the proof-of-stake process. Basically, staking allows HODLers to monetize their crypto holdings from being unproductive in a crypto wallet.

This new system in the DeFi space helps HODLers solve a number of problems. Firstly, coins are staked somewhere out of your reach, eliminating the risk of panic selling. Second, crypto is not stored in exchange wallets. 

But most importantly, staked coins can pay off, meaning that the value of the asset will accumulate over time. This makes you feel like you're making progress even though you're doing nothing.

 

4. Search for Trustworthy Platform

Staking can be set up as long as you have found the right cryptocurrency and a reliable staking platform. Nowadays, many exchanges offer staking programs, just like what Binance does to increase their users' staking income. What should one look for in a staking platform?

First, you have to find out if the staking platform supports the type of token or cryptocurrency you want to stake. There are some platforms that hardly provide any choice and others that support broad cross-assets.

Next, check how decentralized the staking platform is. Find out which projects have registered for their staking program, and what percentage of APY (Annual Percentage Yield) you will get. You certainly don't want to be left disappointed by companies that advertise high returns but never occur in real life.

On top of that, see if the platform provides additional facilities that you can take advantage of. Some staking platforms provide airdrop features, while others support a range of smart diversification options.

 

5. Never HODL Everything You've Invested

If you wish to HODL successfully, you have to realize that keeping all your crypto is not always wise. The tremendous volatility of cryptocurrencies makes your cryptos prone to extreme spikes and crashes. Instead of HODLing all coins, you can hold only some of them to protect your bet against uncertain conditions.

If you start to see that the fees are higher than the coin's value, the crypto is no longer usable, or the transaction time is not efficient, then you could say your coin is no longer competitive. In this case, you should not hesitate to end your HODL and sell it.

 

EndNote

No one can guarantee you will gain big with HODLing crypto for years because crypto itself is a high-risk investment and very unstable. Nevertheless, long-term investments like HODL provide the best chance of success as short-term investments are much harder and require precise entry and exit timing.

Without HODL strategy, you may be pressured to sell on the first major price drop or be tempted to buy impulsively once the price surge for unknown reasons.

Let's say you buy crypto seeing that you believe its value will increase in the long term. If the prediction is correct, you will most likely make more money with HODLing than selling it too soon. You'll save on taxes and fees, which also helps you maximize your profits.

With that being said, selling crypto whenever you want is not a bad decision. Supposing you feel that the coins you save are no longer useful, then selling them can be the right action to take.

 

Besides HODLing, you can try other DeFi investment strategies such as crypto lending to gain some profit via interest.