HODL: The Cryptocurrency Strategy of "Hold on for Dear Life" Explained



On December 18, 2013, something interesting happened on the Bitcoin Forum. It was a certain post. It was not about the latest ICO or a new automated trading platform that was about to change the industry. It was about the firm intention of a drunken guy to never sell his $BTC under any circumstances.

Either due to the celebratory mood right before the Christmas or because many people felt that it was something relatable, the post titled “I AM HODLING” by no other than now famous GameKyuubi  gained immense popularity and coined a new term that the whole crypto community uses to this day.

HODL: how it all started about 10 years ago

There is a reason why a “HODLER” is someone to be respected in the cryptocurrency community. The sheer determination to withstand the urge to sell during a bear market to avoid further losses is enough for many retail traders to respect those who stick to their guns and keep calm despite the chaotic volatility in the market.

While the user named GameKyuubi became the Leroy Jenkins type of the crypto world, he was surely onto something. Many experts since commented on the wisdom hidden deep inside a garbled message written by someone trying to vent about the issues of trading crypto in 2013. Many of his concerns are still quite relevant.

Let’s analyze the original statement and see why it resonated so well with the community:

  1. Trying to trade crypto in the short-term against smart retail traders while not having any experience is more likely to end up poorly.
  2. Sometime in the future, the price of Bitcoin will inevitably go up or crash to the very bottom. It is a “zero-sum game”, as pointed out by GameKyuubi.
  3. Hodling is a better idea for many people who decided to put their faith in the future of cryptocurrencies.

All these statements are still true. Over 85% of all retail traders who enter the crypto market lose money eventually. Thousands of respectable analysts already failed to make good predictions about the price dynamic of Bitcoin. Even more will fail in the future. Hodlers since pre-2019 are still doing better than the market on average.

There is some deep meaning to be found if you are looking for revelations from random sources. The term “HODL” became a motto for hundreds of thousands of people across the globe for a reason. This article is all about discussing these reasons and identifying weaknesses and advantages of this investment strategy.

What does HODL Mean in Cryptocurrency?

Ben Gagnon, one of the experts at Bitfarms, once said that the definition of hodl is far from just a strategy of buying and never selling. He recognized that this approach is akin admitting that the crypto market’s violent volatility is perfect for making money and losing money. By simply never participating in this cavalcade of trades, an investor dodges many risks associated with the industry.

To hodl crypto is to put your faith into the far future. One of the ideas that many people in the crypto community have is that Bitcoin should not be considered a functional currency but value storage. The price keeps going up in general despite some hiccups. If everything goes according to the expectations of crypto enthusiasts, there will be times when $BTC is priced at $100 thousand or more. Then, it will be a good time to cash in.

Before discussing the benefits, we must once again ask: “What is hodl for the crypto community?” For thousands of people it is not a valid investment plan, but a way to express their conviction in the bright future of the global financial system free of any oversight and centralized governments. These people are hodling until these times arrive.

A cryptocurrency strategy that aims at slowly building up a portfolio without selling and taking risks associated with preemptive liquidation of a market position has, in theory, less downsides than trying to anticipate price action. It is doubly so for newcomers without any prior exposure to crypto or other financial markets.

The Benefits of HODLing: Why Many Investors Choose to Hodl Their Crypto Assets

By the end of 2013, the price of $BTC was heading in the downward direction causing our hero GameKyuubi to rant about his decision to never sell as the market seems to be against it. However, it was not the general direction during that month that caused panic. It was the immense volatility experienced by traders from the early January when prices barely held over $14 per $BTC to early December when they surged past the $1 100 mark.

When GameKyuubi was writing his post, the price plunged hard from the ATH of over $1100 to just $440 which was a massive drop. Since then, the $BTC is up over 2500%. Many people made fortunes by simply hodling and never selling. The historical success of the approach employed by early hodlers made the term even more meaningful in the eyes of crypto enthusiasts.

Can it be a sound financial plan for people who want to make money in the long run? Let’s discuss some advantages of employing this particular approach:

  • Any crypto investment strategy that focuses heavily on active trading will have many downsides as risks often outweigh rewards. Without using advanced trading tools like Bitcoin growth bot or statistical arbitrage, you will quickly find that outcompeting the market is not an easy task. Most retail traders doing everything manually usually lose money in the long term. Hodlers are usually safe from these risks.
  • Long-term crypto holding is a good idea for people who want to use systematic trading techniques like DCA (distributed cost average) or preset solutions from some automation vendors like WunderTrading (it offers DCA and GRID bots to clients). These methods allow investors to significantly cut down the average cost of investment and accumulate resources over time.
  • The hodlers’ mindset is always focused on the idea of the better future. It is hard to ignore the growing red number and the urge to liquidate assets before it’s too late. However, those who can overcome this desire to save their portfolios come out on top. Of course, we can say so thanks to having the hindsight, but the fact that many hodlers are millionaires is a proof that the strategy works.
  • You don’t need to wait for decades to reach profitability. Even buyers who entered the market before the 2021’s surge in prices and after June 2022 are up 10% — 18%. Many experts predict that the price will go up in the next few years with $BTC hitting a new all-time high. It is a likely scenario considering how weak the US dollar looks compared to cryptocurrencies. If the inflation won’t be reduced by the first quarter of 2024, we may see a violent bullish movement on Bitcoin charts.

There are many other minor hodling benefits such as lower stress from investing, simpler portfolio management, and steadier wealth accumulation with a high chance of getting rich in the future.

Tips for Successful HODLing: How to Ride out Market Volatility and Maximize Gains

Some of the most profitable hodling strategies revolve around using a well-established token that has a potential for appreciation over time. HODL is not about just buying Bitcoin, there are many other coins that also perform quite well.

Let’s go over some examples:

  • Ethereum ($ETH) is the second-biggest token in the market by trading volume and market cap. Recently, the token changed its consensus mechanism to Proof-of-Stake completely separating itself from the mining industry. Since many other DeFi platforms are using Ethereum as their mainnet, many other layer-2 (L2) cryptocurrencies are also performing well when the price of ETH goes up.
  • Cardano ($ADA) is another Proof-of-Stake blockchain network in direct competition with Ethereum. Both networks act as underlying technological environments for other developments to build on. The $ADA token has been following the same trajectory as many other cryptocurrencies, but the curve is smoother compared to that of Bitcoin. With new features getting ready for deployment, it has a strong potential for growth in the future.
  • Ripple ($XRP) has been recovering well after the Pandemic hit the market in 2021. It is in a much better shape than even Bitcoin and shows some great potential. While Ripple had some issues with the US government, its ecosystem is robust and can withstand some issues related to slowdowns that may occur if Ripple will suffer from regulations. Many believe that it is one of the best tokens to hold in the long run.

The biggest adversary of any retail trader is crypto market volatility. While it provides many opportunities to make money in the short-term, it also creates many scenarios where inexperienced traders lose a lot. When they don’t know how to limit risks and protect their leveraged positions from a margin call, their losses can be extremely painful.

HODL, as a strategy, is a good way to dodge volatility risks. You cannot use this approach with leveraged positions, but buying tokens on a spot market or simply going to P2P marketplaces is a simple way to acquire assets for a long-term market position that can be liquidated whenever you like. However, you need to be excellent at managing emotions while hodling to avoid selling assets preemptively which can be devastating to any portfolio.

The psychology plays a huge role. Many active retail traders have to deal with the fear-of-missing-out (FOMO) and regret when they don’t close a deal perfectly. These feelings can be overwhelming and often lead to depression. Hodlers play a different game. They must battle a different fear — the fear of losing too much money if everything goes south. Despite the history showing us that the opposite is more likely to happen, our deterministic brains keep imagining the worst outcomes.

HODL vs. Trading: Understanding the Difference and Choosing the Right Approach for You

Let’s talk about active retail crypto trading vs. hodling for the long term. Which of these approaches works better? The answer to this question: it depends. Some people are better at making swift decisions and adjusting on the fly while others struggle to determine whether they should buy or sell at any given moment. Some people can manage sophisticated multilayered strategies like statistical arbitrage while others cannot wrap their heads around the concept of a stop-loss order.

Your skills, experience, character, and temperament define how you should approach investing in the crypto industry.

Here are some qualities that work best for successful retail traders:

  • The ability to manage complex systems. Contemporary investors have to rely on various types of assets and financial instruments to create a balanced portfolio. Many retail traders do not see themselves succeed without using advanced automated trading systems and sophisticated technical analysis strategies that are often layered to build something even more complex (like in case with statistical arbitrage and aggressive pairs trading).
  • Determination and confidence. Retail traders must follow through with their plan and execute it without any hesitation. Relaxed contemplation can work for long-term positions, but day traders and scalpers have to be very decisive and take on risks to make profit. It is a stressful line of working that can be detrimental for mental health if you are not “built” for it.
  • The ability to suffer pain. When someone loses money, they experience anguish and pain. These emotions are quite hard to overcome and leave behind to be able to look optimistically into the future. This quality is extremely important for an active retail trader who must learn how to shake off dark feelings and continue working with a clear head not influenced by anger or desperation.
  • Having a large portfolio. It is not a personal quality, but it does affect your ability to achieve profitability while using active trading strategies. Retail traders without a large capital often miss out on many opportunities and cannot sustain long streaks of losses even if they use a very good strategy that averages good returns over long periods. If you live from paycheck to paycheck, DCA is a much better approach.
  • On the contrary, people who enjoy long-term investment approaches do not need the aforementioned qualities. Instead, they usually have different traits:
  • Being able to resist urges. Being impulsive and confident can be a good quality for a scalper, but it is certainly not something that a long-term investor can have to be successful. Resisting the desire to sell your assets for various purposes (the fear of losing money during a bear market or to buy a new fancy smartphone) is the best trait if you plan to play the long game.
  • Being systematic. Distributed Cost Average is considered the best asset acquiring method within the crypto community. However, strategies like DCA require investors to be very systematic and consistent across years. You must learn how to buy certain amounts of tokens each week or month without a fail. It is the way our grandfathers made fortunes.
  • Having faith in the future of the digitized economy. Hodling works well for many crypto enthusiasts because they support themselves with a strong conviction in the future where digital assets are prized above all else. Without this firm belief, you will be easily swayed to liquidate your market positions when the market dives sharply.

Remember that you must either have these qualities naturally or train them to be successful while using one of the approaches.

The Future of HODLing: The Role of HODLers in Shaping the Cryptocurrency Market Landscape

There is a reason why so many experts and even investment institutions talk fondly about the idea of hodling. It is a good long-term strategy, but it is also something that benefits every single investor in the crypto industry.

Here is a simple explanation how any market works:

  • When demand is high and offer is low, prices go up.
  • When demand is low and offer is high, prices go down.
  • When both are equal, prices stabilize.

Large trading volumes facilitate price growth in some markets. It is why many exchanges and some huge investment institutions participate in market making. They generate trading volume to prop up certain assets and attract more participants to the market. However, when too many people sell off their assets, prices inevitably plummet.

Hodling means that less $BTC tokens are offered for sale. It lowers the offer while keeping demand high. The role of long-term investors in the cryptocurrency ecosystem is often underestimated, but they decide the general direction of prices by simply not participating in trades and reducing the availability of assets to newcomers.

There must be a healthy balance between active retail traders generating volumes and long-term hodlers removing offer from the market to facilitate price growth. In the far future, when Bitcoin is fully issued, the limited supply will further increase prices as people will try to hold on to their tokens. Without hodlers, the market will collapse and tokens will quickly become obsolete.

You should never think less of the impact of hodlers on the crypto market stability. These people allow us all to profit from using advanced trading methods that benefit from lower levels of volatility and long-term trends.

How to complement your hodling strategy with other investment products

It is possible to be a hodler and still use other methods of investments in crypto assets without compromising your portfolio. We have already established that people who can successfully hodle are often the same people who succeed with conservative systematic approaches to trading.

Here are some complementary strategies that you may find useful:

  • Statistical arbitrage. It is a sophisticated system that requires multidimensional analysis of several correlated assets that can be traded in opposite directions. A system of multiple long and short market positions on such assets creates a balanced portfolio. It usually requires using bots which can be created using crypto arbitrage signals from TradingView.
  • GRID bots are also quite efficient at generating profits. These create series of orders using DCA rules and accompany them with strategically placed delayed orders (TP/SL). They look like a grid on the chart hence the name of the bot.
  • Traditional cross-market arbitrage. It is a good system to employ if you can monitor multiple exchanges simultaneously to look for price discrepancies which can be instantly capitalized on by placing opposite market orders on two different trading platforms.
  • Covered calls. This options strategy can be a good choice for people with relatively big portfolios as you will need to simultaneously hold a long market position on a certain asset while selling call options that are equal in size to the asset you are holding. The earning potential is low, but if you are already hodling $BTC, it can be a good strategy when you do not anticipate any significant movements in the market.

While hodling may seem like a no-brainer strategy, it has nuances and should be protected by diversifying your portfolio. A good idea is to have something to offset risks associated with hodling assets that may not grow above a certain threshold.

For example, Bitcoin may have a ceiling of $30 thousand and not grow any further in the future. To protect your portfolio from a risk of not gaining enough profits, you may also hold a short position against tokens that are closely associated with $BTC (mostly, tokens that use the same architecture like Litecoin or ZCash) or buy tokens that are considered main competitors in the market (Ethereum and all EVM-compatible networks come to mind).

Diversification can be done using other tricks like expanding your portfolio into automation and copy trading sectors or balancing it out with fixed-interest assets such as US treasury bonds and bonds issued by other governments. While these are usually limited to about 2% — 10% depending on the shape of the economy, having them alongside riskier investments like crypto is a good idea.

Should you hodl Bitcoin or any other cryptocurrency?

A HODL strategy looks like something any investor should consider if they are planning for the long term. However, it will lock your assets in a hefty portfolio that you cannot liquidate at any moment until the right time comes. People who have the luxury to buy and hold cryptocurrencies with some potential usually do it as a bet against the failing global monetary system. However, regular investors may not find the idea of not using their money actively quite frightening.

We strongly recommend contemplating how you will use your capital in cases when you lock it in long-term market positions and when you actively employ them for short-term gains. You don’t need to rush the decision, sit on it for a couple of weeks. You should commit to a certain strategy and stick to it for the next several years, so thinking beforehand is a good idea.

The main takeaway

After almost 10 years since the inception of the term “HODL”, it is still a hotly debated approach to investing in cryptocurrencies. This long-term strategy is valid and can be used to a great success, as proven by hundreds of successful hodlers.


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