Is HODLing Bitcoins A Good Idea?
HODL was originally a typo for the word “hold.” The cryptocurrency community found it so entertaining that they adopted the word “HODL” from a post to describe the practice of keeping rather than trading cryptocurrency.
Bitcoin’s price surge and record-breaking in December 2017 provided holiday pleasure to investors. As its price skyrocketed, bitcoin fans made wildly inaccurate predictions about the cryptocurrency’s future value. By the third month of 2018, their predictions could have been more optimistic. More than two-thirds of its value had been wiped out since its December high, and almost half had been lost since the beginning of the year.
Since then, Bitcoin’s price volatility has been well-known, and investors have learned to expect such swings. But dealing with money is more nerve-wracking. The Bitcoin price volatility has caused many investors to reevaluate their initial impressions of Bitcoin.
The HODLing is briefly summarized below. Is it wise to HODL? Let us find out.
What, exactly, is meant by the term “HODLing”?
To “hodl” Bitcoin is to invest in it with the hope that its value will skyrocket. Buying Bitcoin at a low price and selling it at a high price after holding it for a year or longer is the same as investing in any other asset, such as real estate, gold, stock, etc. In the long run, the investor needs to be thinking to succeed with this strategy.
Compared to day trading, investing in Bitcoin and holding it long-term is simpler, less hazardous, and doesn’t require as much expertise. You only need to know the basics of buying and selling Bitcoin. When holding, however, there are other considerations to take into account.
With a long-term investment, you can assess and limit your risk by learning as much as possible about the coin you’re considering buying to determine whether or not it has the potential to yield the profit you’re after within the allotted time frame.
You don’t put money into a coin unless you understand how it works and are confident in the technology that supports it.
Because of the volatile nature of the cryptocurrency market, it is recommended you only risk capital that you can afford to lose entirely.
Keeping a close eye on Bitcoin’s price isn’t always required.
You shouldn’t worry about money all the time because doing so can induce anxiety and make you more susceptible to the influence of fear of missing out (FOMO) and other negative emotions.
For What Reason Should You “HODL” Bitcoin?
Cryptocurrency is digital money that operates on a distributed ledger called the blockchain. It serves as a means of exchange in addition to holding value. Bitcoin, Ethereum, Ripple, etc., are all examples of cryptocurrencies. In contrast to fiat currency, produced by a centralized organization like a national bank, cryptocurrencies are issued and managed independently by their users.
Due to their spectacular price increases in 2017 and 2020, cryptocurrencies continue to attract investors’ attention. Cryptocurrencies have the opportunity to expand as the trend toward financial decentralization and digitization of currency continues. Investors have hoarded cryptocurrencies as a store of value in the low-interest, inflationary environment that has persisted since COVID.
“Holding” is shorthand for the buy-and-hold investment strategy. Buy-and-hold investors keep their investments for a long, hoping to reap the rewards of price appreciation. In contrast, traders are constantly making and taking part in deals to profit from the difference between asking and selling prices.
Cryptocurrencies, by their extreme volatility, present frequent openings for long and short traders. While “trading” exposes investors to short-term volatility, “holding” protects them from the risk of buying high and selling low by keeping their investments indefinitely.
The Dangers of “HODLING”
Investors should consider the hazards of owning any cryptocurrency, in addition to the current high rate of return and motivations to invest that were discussed above. Cryptocurrency prices fluctuate widely. Because of the potential for big swings in asset value, investors should be prepared to take on more risk than they would with more traditional investments. They must keep enough cash to prevent liquidating assets or going into debt to cover unforeseen expenses.
Cryptocurrencies have a short history when compared to other assets and fiat currencies. Thus, their future is uncertain. There needs to be clearer regulation when it comes to virtual currencies. Fraudulent activities, including illicit transactions and money laundering, are possible with cryptocurrency due to the lack of centralized oversight.
Conclusion
With HODLing, all you need to know to invest in Bitcoin is when and how to buy and cash out with a minimal loss. The small daily profits that day traders make can cause them to overlook opportunities for far larger gains.
McClatchy newsroom and editorial staff were not involved in the creation of this content.
