Hodl is one of those phrases that you hear all the time in crypto. But what is the hodl mentality and why is it so important? Basically, we’ll talk about the difference between trading and hodling, where the phrase “hodl” came from and the best way to hodl Bitcoin as an investment.
Should you Trade or Hodl Bitcoin?
There’s a common saying in finance that 98% of people who try trading don’t make it. They never end up trading profitably enough to earn a full-time living from it.
Trading is an incredibly difficult activity that requires the right combination of dedication, patience, natural ability and emotional control. Most people just don’t have the ability to be successful traders. That’s the bad news.
The good news is that even though hodling (investing) isn’t necessarily easy, it’s much more accessible to the average person than trading. Anyone can buy and hodl Bitcoin; you don’t need special training to do it.
As for the profits, Warren Buffet was an investor, not a trader, and he was the richest man in the world for a while. Buffet’s wealth tells you everything you need to know about how much money you can make from investing.
For the average person just getting into crypto, it’s a heck of a lot better to hodl crypto than try and trade.
What does HODL mean in the crypto world?
Contrary to what many people believe, hodl does not actually stand for Hold On for Dear Life. Hodl is a phrase that references a famous post on the BitcoinTalk forums.
A wayward trader, who’d been drinking, wrote a post about how he was losing money trading and was done with the short-term game. Instead of moving in and out of positions he was going to hold Bitcoin for the long term. The post, where “hold” is misspelled as “hodl,” became an instant classic and the term hodl was born.
How to Hodl Crypto
These five tips can seriously improve your hodl game. At first glance it sounds like it would be easy to hodl crypto but as with most things in life, it’s a bit more difficult than it looks on the surface.
1) Prepare for volatility
Bitcoin is one of the most volatile assets in the world, and altcoins are even more volatile than Bitcoin!
Massive volatility (big price swings) is what gets hodlers huge returns, but it can work the other way as well. For example, in March of 2020 BTC went down 50% in one day! That was an unusually large drop even for Bitcoin, but BTC regularly goes down by 30% or more in a bear market.
Hodlers have to mentally prepare for big drops and accept them as a normal part of investing in crypto.
2) Think long term
By definition, to hodl crypto you need to keep the investment for a long time. Bitcoin typically has a four year market cycle and many hodlers plan to keep their crypto for several years or more.
For people just getting into crypto it’s probably smart to have a 3 to 5 year timeframe. While it’s very possible to make a lot of money investing in crypto, achieving big gains can take a while. Plan accordingly and keep the hodl mentality strong.
3) Don’t day trade
As a hodler the worst thing you can do is day trade crypto. The entire idea of the Bitcoin hodl is that we can all do it. Anyone can buy and hodl Bitcoin, you don’t need to know charting, technical analysis or how the options and futures market work.
Unless you have some natural skills and take the time to develop them, it’s unlikely that the average person will ever make more money day trading than what they could make by hodling.
Another disadvantage of day trading is that the taxes are higher in most countries. To qualify for a discounted tax rate, a hodler must keep their cryptocurrency for at least a year in most countries.
4) DYOR
Do Your Own Research. Regardless of what happened, you need to know that it’s worth to hodl. It’s a lot easier to hodl crypto when you know other people are doing the same thing. However, the decision is up to you whether to hodl.