Incorporating strategies during investments helps to improve financial gains. This article highlights the features of HODLing, one of the popular investment strategies.
HODLing is an investment strategy in which traders buy an investment and hold it for a long period of time in the hope of gaining a huge profit. The holding strategy helps investors avoid the risk associated with short-term volatility and increases returns from long-term investments.
When an investor invests using the HODLing technique, he holds the asset during a market downturn or fluctuation and only sells it when a desired time frame occurs.
Origins and Philosophy of HODLing
HODLing is a misspelling of HOLDING. The term HODling originated from an online post on the Bitcoin Forum, an online platform where traders shared their views about Bitcoins. The post contained the title ‘I AM HODLING’ which is actually a misspelling for holding.
The misspelled word circulated all over the crypto platforms and spread to other cryptocurrencies. During that time the price of Bitcoin was volatile, surging from $950 to $130, encouraging many not to sell but ‘HODLing’. HODlers do not get affected by the fluctuations in price, they hold their asset until an optimal condition comes.
Long-term crypto HODLers believe that cryptocurrency will replace fiat currencies in the future, by holding them they can generate more financial returns. Also, the exchange rate between cryptocurrency and fiat currency becomes irrelevant for crypto holders in the coming years. HODLing is an ideal investment technique for traders who aim to incorporate blockchain technology into their assets over a long time.
Benefits of HODLing
Many investors follow the HODLing technique in the belief that the worth of cryptocurrency will increase in price over time. Holding assets for a prolonged period results in substantial gains in the future.
1. Potential for long-term financial returns
Cryptocurrencies like Bitcoin and Ethereum have shown huge hikes in growth over the years. Investors who have held these assets amidst the downturn have gained profits in the future, making many follow the technique.
2. Avoids emotional trading decisions
The volatile nature of the crypto platform mainly affects short-term investors. This volatility results in emotional decision-making like buying during downturns and selling during stake surges. While following a HODLing system, a trader ignores the short-term fluctuations and focuses on long-term profits.
3. Minimise trading fees
Buying and selling of cryptocurrencies requires transaction fees. Continuous transactions can result in higher transaction fees. When investing using the HODLing strategy, buy and sell occurs occasionally, thus low transaction fee is required.
4. Favorable tax treatment
Holding the crypto investment for a long time can result in tax benefits. Short-term assets are taxed at higher rates than long-term assets. Holding the asset for more than a year can result in low tax requirements.
Risks of HODLing
Despite the advantages of investing, HODLing includes certain risks.
1. Volatility
The volatile nature of cryptocurrency makes it difficult for crypto investors to predict the long-term benefits of investment. Investors have to face many ups and downs in the future, increasing the risk than in a conventional investment.
2. Ambiguity
Though the current scenario shows a future for cryptocurrency investment, what it has in store for the future is still uncertain.
3. Market downturns
The volatility of cryptocurrency can result in both growth and downturns. A long-term investment is severely affected by a downturn in the market.
4. Varying attitude towards the use of cryptocurrency
Different countries have different perspectives on crypto investment, resulting in hindering international transactions and gradually affecting the value of cryptocurrencies.
HODLing vs. Active Trading
HODLing is a long-term trading technique opted for by investors aiming for far-future benefits. The buy and sell of assets occurs at random in the HODLing strategy.
Active trading occurs every day. Investors buy and sell assets for short-term small profits, but are highly affected by the daily fluctuation of market prices.
| HODLing | Active trading |
| Long term investment | Short term investment |
| Investing in the hope of huge gain | Investing in the hope of small gain |
| Doesn’t get affected by short-term volatility | Gets affected by short-term volatility |
| Ambiguity exists | No ambiguity |
| Mostly chosen by experienced investors | Adopted by beginners |
| Lowers transaction fees | Increases transaction fees |
Bottom Line
HODLing is a long-term investment technique where traders invest their assets for large financial returns. HODLers are less affected by the short-term volatility of the crypto environment. HODLing reduces transaction fees, avoids emotional trading decisions, and reduces tax rates, however, the market downturns, ambiguity, and varying attitudes of countries towards cryptocurrency can put investors in dilemma.