Over the past few years, countless cryptocurrencies have “broken into” the market, with Bitcoin rising to become a household name and enjoying a gilded life. While not everyone dares to invest in Bitcoin, those who follow the market trends have made substantial profits. Adding digital assets to an existing portfolio provides better returns than shares, bonds, or property, reducing risk significantly. Even a short position in Bitcoin allows you to hedge against different markets. You can buy Bitcoin with credit card at any time from anywhere, but for that, you’ll need a cryptocurrency exchange.
It’s one thing to buy a bunch of Bitcoin. But using a strategy to invest in Bitcoin is an entirely different thing. Bitcoin tends to be volatile, which might increase your portfolio’s risk if your asset allocation is heavy on cryptocurrency.
Nevertheless, with the right strategy and the proper tools like a good crypto profit calculator, you can attain your financial goals. E.g., generating income to supplement your working lifestyle. HODLing is a passive way of investing in Bitcoin. If you’re wondering whether it’s really worth it, continue reading to discover how it works for cryptocurrency investments.
HODL Is a Misspelling of The Word Hold
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Believe it or not, HODL is an incorrect spelling of the word hold. It’s often used in the context of buying and selling cryptocurrencies, and it means “hold on for dear life.” Simply put, investors purchase assets and hold them for long periods of time, hoping for future growth in the value of that particular cryptocurrency. It’s believed that the term HODL was first used in an online post on the Bitcointalk forum in 2013 that encouraged people not to sell. The title of the post was “I AM HODLING”. Despite the comic relief, the essence of the post lingered, and the word HODL is still used.
HODL is an investment strategy by which you buy cryptocurrency like Bitcoin with the aim of holding onto it for a prolonged time, despite the market conditions. This makes it possible for you to take advantage of the increase in value of the digital asset. A gain arises if the current price of Bitcoin is higher compared to the original purchase. By HODLing, you’re not trying to time the market, so you won’t sell your investment when it experiences a drop in price. Even if this strategy involves only two steps, HODL requires emotional resilience regarding market fluctuations.
It’s A Core Principle of Bitcoin Advocates and crypto Enthusiasts
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HODL has become a guiding principle for the behavior of Bitcoin advocates and crypto enthusiasts. It’s more than a way to overcome FOMO (fear of missing out). Cryptocurrency advocates hold onto their Bitcoin for as long as possible because they’re convinced cryptocurrencies will one day replace fiat currencies completely as the basis of the economic system. Bitcoin is viewed as the only worthwhile digital asset, now and in the future, so all other coins are mere distractions. If this vision were to come to life, then the rate of exchange between cryptocurrencies and fiat money would no longer matter.
As you can see, HODL is more than a long-term investment strategy. Established coins like Bitcoin are well-suited for an investor’s financial goals, as they have an acceptable level of risk and can increase the investor’s net worth. HODLing has paid off throughout history, but holding onto assets isn’t exclusive to the cryptocurrency market. Warren Buffet, one of the most influential investors in modern history, prefers buy-and-hold investments instead of actively trading. Getting back on topic, HODL isn’t an ordinary investment strategy because investors genuinely believe in the growth and adoption of cryptocurrencies, not to mention their potential to transform the world of finance.
What’s The Difference Between HODL And Buy-And-Hold?
HODL is much like the buy-and-hold approach, but it’s not exactly the same thing. When HODLing, there’s a stronger inclination to hold onto your assets and not sell due to sudden fears of a forthcoming decline in demand or drop in market value. Buy-and-hold takes place when you purchase an asset – say, stock – and hold it for years on end, operating under the assumption that the asset’s price will increase with time. You select stocks based on a company’s long-term success and prospects. The aim isn’t to beat the market but to match it. By contrast, if you invest in cryptocurrency, you aspire to make substantial gains.
How To Know If HODLing Is the Right Approach for You
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Selling cryptocurrency during a downturn can lock in losses, whereas if you hold, you might see a recovery. It’s a common strategy used by value investors who weather market ups and downs with a focus on long-term gains. HODL can be used in every risky situation, protecting investors from rash decisions while doing daily work. When deciding whether to HODL or not, take into consideration your goals and risk tolerance. Equally important is to do your research and due diligence before making investment decisions. You can adopt a HODL strategy if you plan to add Bitcoin to your portfolio but have no intention of selling it for months or years.
Holding digital assets for the long term brings many advantages, such as:
- It doesn’t turn to market timing. HODLing isn’t reliant on timing the market, so you don’t have to speculate when the prices are going to rise and fall. That’s encouraging because it’s not easy to do this. Timing the cryptocurrency market requires expertise and the ability to predict shifts.
- It can help build discipline as an investor. Discipline in cryptocurrency trading is the basis of success. Even if you’re an intelligent person with extraordinary technical skills, you won’t attain success in the long run without a stable psychological side. HODL forces you to think about the long-term benefits of your strategy.
- It can result in a lower tax rate on your earnings. If you hold cryptocurrency for more than one year, it will become apt for long-term capital gains tax treatment. The tax can range from 0% to 20%. You could hold onto your Bitcoin for decades and owe no taxes on those gains. The situation changes when you sell the cryptocurrency.
HODLing involves a significant time horizon, so invest money you don’t need for a long time.