Sometimes interpreted as “hold on for dear life,” the term has become quite popular not just with cryptocurrency holders, but also among Average Joe investors with stakes in the stock market. But where did this word come from, what does it mean to HODL, and is it an effective investment strategy?
The Origin of HODL
First things first: HODL is a spelling error of the word HOLD that’s turned into a term of its own. It came to be in 2013 and was coined by an early Bitcoin investor. In an admittedly intoxicated vent entitled “I Am HODLING” on the online forum Bitcointalk, user GamerKyuubi lamented his poor trading skills and expressed his desire to keep his assets.
The rest, as people say, is history. The misspelled HODL circulated and took a life of its own, and it grew in popularity among cryptocurrency enthusiasts and investors in other markets. Now, if a person were to buy a cryptocurrency such as Monero and hold on to their coins in their XMR wallet for a long time, then they’re said to be HODLing. The same can be said for retail investors who plan to keep their GME stocks for quite a while.
In addition to HODL, there are plenty of other investment slangs that have seen the light of day in the past decade, and some of them have found everyday use outside of crypto markets. Among these terms are Diamond Hands, which refers to investors who hold on to a cryptocurrency or stock regardless of the level of risk that the asset presents, keeping it to reach a predetermined end goal. On the opposite end of the spectrum is the term Paper Hands, which refers to investors who may have the same goal as Diamond Hand investors but are quick to sell the assets that they are holding on to at the first sign of trouble. There are many other terms that continue to spring up due to the new generation of investors.
Embodying the Spirit of HOD
HODLing, in general, refers to the basic strategy of buying and holding. People who follow this investment plan hold on to their assets for months or even years with the intention of benefitting from long-term price appreciation. Many investors see it as a sensible strategy for managing assets like cryptocurrencies, which are volatile in nature.
By HODLing, investors stay invested in their coin or asset of choice but without having to deal with extreme price volatilities as well as some of the trading tendencies people often get when the price of an asset takes a dive. Newbie investors can stick to this strategy to steer clear of decisions that are driven by “fear, uncertainty, and doubt” or FUD. Some of the more experienced people who HODL don’t even pay attention to the hourly and daily changes in the price of their chosen cryptocurrency anymore, as they are confident that their commitment to their long-term strategy will enable them to reach and even exceed their financial objectives.
Does HODLing Make Sense?
HODL has proven its memetic potential, but does it hold water as an investment strategy? It’s a pretty basic way of managing one’s assets and many people continue to use it, and this only shows that HODL can be a practical option given the right context. Investors who want to buy low and sell high much later on without having to deal with fluctuations in market prices might find this management strategy more up their alley, for example.
Still, there are instances where financial experts recommend that newbies take a more active role in managing their investments. Some people even argue that the investors who HODL are missing out on the gains offered by price volatility and that this strategy prevents them from benefiting from timing the movements of the market.
To HODL or Not to HODL—That Is the Question
Ultimately, the best investment strategy is one that is aligned with the investor’s objectives, risk appetite, level of involvement, and skill in reading the movements of the market. There are certain instances when HODLing will prove to be the better option, but there are also times when getting more involved with the market will give investors a better chance of earning a profit.
It’s a smart move for newbie investors in cryptocurrency or stocks to do their research well before making any decisions, and they should also try to set a limit to the amount of money that they are willing to invest on their first foray. Doing so will help them make smarter decisions and develop trading and investing skills that will serve them well in the long run.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.