HODLers? Yes, that’s not a caps lock error. In the wonderful world of crypto, there’s an avid group of Bitcoin investors that will never sell. Whether the price rises or falls, HODLers always hold on to their Bitcoin stack. They are the long-term investors of the crypto world.
In this article we look at the origin of the term HODL, how it works as an investment strategy and whether cryptocurrencies like bitcoin could be a part of your long-term investment strategy alongside stocks and ETFs.
Before we go deeper into the HODL strategy, let’s go back to basics: what is Bitcoin anyway?
Bitcoin in a paragraph
If you want to compare Bitcoin with another investment product, gold is the closest comparison. In the financial world, some people refer to Bitcoin as digital gold or gold 2.0 because it has a fixed and finite supply. But Bitcoin is more than that. It’s not only a store of value, but also a fully decentralised payment network and a form of digital money. Bitcoin is based on open-source technology and operates without a central authority. This means that no one, not even a government or central bank, owns and controls the network. There will be a maximum of 21 million BTC ever created. That makes the coin scarce (similar to gold) and that’s why investors find it interesting.
Back to the HODLers.
Where does the term HODL come from?
The term HODL was accidentally coined in 2013 by a user named GameKyuubi on the Bitcointalk forum. In 2013, the bitcoin price was quite volatile. The price rose that year from just over $100 in April to over $1,100 in early December.
On December 16, 2013, the Chinese government introduced a law banning payment companies from working with Bitcoin exchanges. It sparked a wave of volatility. GameKyuubi posted a message two days later on December 18th with the title: “I AM HODLING”. He was suspected to have made a typo, but he kept writing “HODL” in his posts.
GameKyuubi wrote in a series of posts that day that he would hold onto his Bitcoin investments forever and that he didn’t consider himself a short-term trader. His statements went viral and were made into hundreds of memes. Now, the word HODL has forever entered the vocabulary of Bitcoin investors.
The HODL Strategy
HODL is now the accepted term for investors with a long time horizon. HODL is also used as an acronym for Hold On for Dear Life.
The phrase has now become a mantra among long-term crypto investors. When the prices are volatile, the HODLers yell, “HODL!”. A true HODLer also ignores the biggest price swings. The strategy here is that many don’t believe in timing the market because they don’t have the skills to trade short-term movements. Others want to wait until Bitcoin is accepted as money by governments around the world.
Can you HODL stocks and ETFs?
Although this started out as an internet meme, the HODL strategy is very similar to the traditional ‘buy and hold’ strategy that investors use for stocks. In this case, investors buy stocks for the long-term and rarely, if ever, sell them. In that respect, the strategy is the same. However, there is one difference. Until recently, stock prices have traditionally been less volatile than crypto.
When investors buy and hold stocks, they get exposure to long-term price appreciation while experiencing much less price volatility than crypto. So if you plan to HODL Bitcoin, be prepared that your investments may fluctuate in value.
Crypto as an addition to your portfolio
Let’s say you want to invest for the long-term, but you want to limit your risk. Is there still space for crypto in your portfolio? Yes! You can make crypto a small part of your larger strategy, with an amount of money you can afford to lose. That way, it’s balanced out with a diverse portfolio.
Can bitcoin really be a safe part of your portfolio?
Making Bitcoin or crypto part of your long-term strategy deserves an article of its own. Luckily, we have one ready for you!
In this article, we break down some crypto myths and explain how to make crypto part of your long-term investment strategy alongside stocks and ETFs. In fact, statistics show that a small amount of Bitcoin can improve the long-term performance of a traditional portfolio.
Investing in crypto?
Of course, make sure you only invest money you can afford to lose. Cryptos are still very volatile. In our Knowledge Centre, we give you all the tools you need to make informed decisions. And it’s completely free, so take advantage of it!
All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.