In late 2013, when bitcoin prices were in the midst of a steep decline, a message appeared in an online forum with a misspelling that would become legendary: “I’m hodling.”
The manipulation of the word “hold” captured a kind of irreverent blind faith from some early cryptocurrency adopters, and it has since become part of the digital asset lexicon.
But ‘HODL’ is more than just a meme. According to financial planners and analysts, it is also a rational response to a market whose ups and downs are extremely difficult to predict.
“The holding part is important because it’s a nascent industry, and as a retail investor you’re not well equipped to be able to capture volatility and trade assets,” says Theresa Morrison, certified financial planner in Tucson. , Arizona.
Indeed, the original HODLer in 2013 had no illusions about its ability to play in the market. But the message conveyed confidence that time would improve bitcoin’s fortunes.
“Why am I holding back? I’ll tell you why,” their post reads (this time spelling “hold” correctly). “It’s because I’m a bad trader and I know I’m a bad trader.”
Proven with limits
The usefulness of HODLing, like any investment strategy, has its limits. Even a long-term cryptocurrency investor would be well served to articulate clear goals and monitor the emerging space for systemic risks.
But in general, the idea of investing for long-term rather than short-term gains is not new. A proven guideline for investing in the stock market is to only invest money if you are prepared to hold it for the foreseeable future – say, at least five years – rather than trying to predict peaks and dips. short-term trough.
With cryptocurrency, says Morrison, the importance of patience is even greater. The volatility is more extreme, but the long-term gains have been quite attractive.
If you had invested $1,000 in bitcoin on the day HODL was originally published, it would have been worth nearly $63,000 in early 2022. But there are countless people who have lost money trading bitcoin. bitcoin in the meantime, buying it when it was high and bailing out after a disappointing fall.
Many long-term HODLers take examples of successful wins as validation of a strategy that can sometimes border on fanaticism. In online cryptocurrency forums, users may be shunned for liquidating some of their holdings even after significant long-term gains.
“There’s nothing wrong with locking in your profits,” a user on Reddit’s CryptoCurrency message board recently lamented. “Don’t let anyone make you feel bad about it. Even if you lock in your profits at 50%, you are still at 50%.
article of faith
The devotion among HODLers comes from the culture surrounding bitcoin and other cryptocurrencies, says David Duong, head of institutional research at cryptocurrency exchange Coinbase.
For some, cryptocurrency represents a vision of economic change bigger than themselves.
One of the distinguishing features of so-called blockchain technologies such as cryptocurrencies is that they could theoretically be used to create “decentralized” products and services free from the costs and controls imposed by authorities such as bankers and regulators. .
“People in space believe very much in the transformative nature of technology itself,” says Duong.
Your HODL decisions
You don’t have to be a cryptocurrency scholar to learn anything from HODLers. If you believe in the value of your investments, you may be less likely to panic in the face of market turbulence.
A good strategy, says Morrison, is to have a clear idea of why you’re investing in something when you buy it. And when you’re tempted to sell it, a key question is whether anything in your analysis has changed.
That doesn’t mean it’s risk-free to hold your investments forever. Cryptocurrency and blockchain technology are still relatively untested, and they may not materialize as the game-changing innovation their proponents envision. There are also times when it may be prudent to sell, such as cashing in on gains when you’ve reached your goals.
But HODLing can be a useful default.
“As a crypto buyer, you definitely want to have an investment policy statement. You definitely want to know what’s going to change your mind about selling,” Morrison says. “Otherwise, you should be a HODLer. “