What is HODL?
HODL or later on for "Hold On for Dear Life" is a strategy among crypto enthusiasts in which the cryptocurrencies are not sold even when there is a period of high volatility.1 HODL is the equivalent term for long-term investing used in equity markets.
How did HODL gain popularity?
If one observes the chart of Bitcoin, there have been numerous instances in which the price has crashed.2 This has been a trend since 2018, with many investors quitting the market during a large drop in price. Those who maintained their conviction generally have reaped the benefit over the long term. Thus, the HODL strategy became a mantra for crypto holders who believe that the technology is here to stay and will continue to generate high returns for investors.
HODL is particularly significant for highly volatile assets like cryptos because it is fairly common to see the price periodically crash by a considerable amount. While short-term gains may be effective for day traders, those backing blockchain technology should have a longer horizon for investment. HODL also reduces trading fees for investors because the turnover in the trading accounts is also reduced. Since there are thousands of cryptos in the market, HODL may not work for all.
Example
Again, referring to the chart of Bitcoin, if an investor had exited at 19k USD, he would not have benefitted from the appreciation in price after the crash.2 The price rose to almost 67k USD in 2021, a 3.5x increase in the value over a 3-year period.
References
1. What the Heck Is Hodl? Bitcoin Lingo for Crypto Noobs BloombergQuint.
2. Bitcoin Coindesk.
Please note that this article is for informational purposes only. The example above is for illustrative purposes only. Actual crypto prices may vary depending on the market price at that particular time. Alpaca Crypto LLC does not recommend any specific cryptocurrencies.
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