HODL is a term popular among cryptocurrency investors and is used to refer to people who prefer not to sell their cryptocurrency holdings regardless of the short-term price volatility or movement. These fellows would not sell in the short term whether the price increases or decreases in the short term. Hodlers are often referred to as ‘diamond hands’ and would berate sellers as ‘paper hands’. The term has since been retrofitted as an acronym for ‘Hold On for Dear Life’.
The word HODL itself was originally a misspelling of the word ‘hold’ in a bitcoin talk forum. In 2013, bitcoin price in USD had risen from as low as thirteen dollars ($13) in January to over a thousand dollars ($1,100) in November to below four hundred dollar ($400) by December 13th. This now typical bitcoin volatility probably led the user with username ‘GameKyuubi’, who later alluded to having been drunk to type the now famous post. In the post, he lamented his poor trading skills and pledge to just hold his bitcoin going forward. Today, the Bitcoin community celebrates this as a holiday with memes that have since popularized it over the intervening years. You can read the original post at http://bitcointalk.org/index.php?topic=375643.0
The ideas the writer espoused here just like the misspelling have become popular among cryptocurrency enthusiasts the world over and form the basis of long-term holders of cryptocurrencies. There are some of these who do hodl for different reasons apart from not being great traders or illusioned noobs. These reasons range from believing in the underlying technology or value proposition, people in developing economies using bitcoin for savings etc.
The key ideas in his post largely hold and are similar to the buy and hold strategy espoused by Warren Buffet and his partner Charlie Munger. Although some have been successful with this hodl strategy, others have argued that dollar cost averaging is a better strategy and there is a lot of sense in both arguments. However, an outline of the basic concepts drawn from this post is below:
- Trading, especially timing tops and bottoms is not exactly easy.
- Weak hands typically buy due to FOMO and sell during a downturn either way usually losing.
- It might be better to just hodl instead of trading if you are not a good trader or extremely lucky at guesses.
- You only lose when you sell to traders while in unrealized loss.
In reality, hodling could be a good strategy for some people but to profit from it, you would need some disposable funds or funds that you don’t need soon, emotional stability, some time (probably years) and be able to pick good projects with sound fundamentals including utility, value capture net, product as well as a sound tokenomics or most of these at least. Cryptocurrency projects have been known to rise to multibillion-dollar market capitalization and lose unimaginable value (by traditional standards). For instance, look no further than the recent implosion of the Terra Luna ecosystem.