If you are in cryptocurrency trading, you can easily make money with HODLing. HODLers usually buy a crypto asset, and when the price becomes unfavorable, they hold it rather than selling with a loss.
The cryptocurrency market is very new in the investment world. However, many traders are still scared of this market due to its excessive volatility. Moreover, there are many reasons, like an outrageous market crash for more than 50% a day is a solid reason to believe it is a risky market.
In this situation, is it wise to buy a cryptocurrency and hold it for a long time?
Today we will see a complete guide of HODLing in cryptocurrency, and let’s start with the meaning.
What is Cryptocurrency HODLing?
HODL is a wrong spelling of HOLD, originated from a Bitcoin forum, where investors exchange their thoughts over the Bitcoin and global economy.
One of the forum members, “GameKyuubi,” wrote on a post, “I AM HODLING”, and from this post, the misspelling became viral, and people started using it.
In 2013, Bitcoin moved higher from $15 to $1100, with more than 7000% gain in a year. This significant gain creates hope among investors about holding their assets for a long time.
Cryptocurrencies started to gain investors’ attention from 2017 to 2020. Within this time, many decentralized financial projects grew where cryptocurrencies were an essential medium of payment. Furthermore, during the Covid-19 pandemic, the low-interest environment and inflation expectation influenced people to hold their crypto investments with the hope of future price appreciation.
The meaning of HODLing is to hold and invest for a considerable time. It is applicable for investors who buy cryptocurrencies and, instead of moving up, the price falls. In this situation, investors who do not sell their assets and hold them, known as HODLers.
Cryptocurrencies are very volatile, where both short-term price fluctuation and long-term investment provide potential profit. The key factors are that the cryptocurrency market is very new. Most of the crypto assets are low. In this situation, holding an investment is high potential for the future.
Cryptocurrency HODLing strategy
HODLing is a straightforward method. If you buy a crypto asset at a lower price, it has a higher possibility of moving up. Here the main risk is time.
A lower-valued instrument can move up at any time, but there is no specific way to say when the movement will happen.
As a crypto investor, when you buy an asset from any significant support level, it may show price growth, but what if it moves lower?
In traditional CFDs trading, traders usually stop loss below any support level with some buffer, but in a HODLing, the approach holds the investment rather than selling the asset. It is effective for the crypto market as it is emerging and values are low. Let’s have a look at an example.
In the above image, we can use the price of SHIVA/USDT. As per the price chart, we can say that the instrument is very new, and there is no significant history of price.
In this market context, the HODLing approach is to buy this asset and hold it if the price comes lower. Thus, HODLers can have their trades for more than 2 to 5 years, as shown in the image below.
As per the image, if you have bought Bitcoin in 2019 and HODL, you would make a $56,000 profit in 2021.
HODLing vs. short-term trading: key differences
In HODLing, investors buy an asset and hold it for future price appreciation. But, on the other hand, the short-term trading, investors don’t have to wait a long time for a profit or make huge profits than HODLers.
Let’s see some key differences between these methods in crypto trading:
Short-term trading has a higher profitability rate than HODLers.
The financial market makes swings in the price movement that is easily visible in the technical chart. Therefore, if you hold an asset for a long time, you usually miss out on short-term swing trades.
Here we can see how swing levels provide potential buying and selling possibilities to Bitcoin.
HODL is more reliable than short-term trades as the cryptocurrency market is new.
The crypto assets are very volatile, where 10% to 50% gain or loss are prevalent compared to the traditional financial market. Therefore, if you sell your investments rather than holding them, you may miss the price rebound.
Therefore, any new crypto assets that start trading with a minimum value HODLing are more reliable than short-term trading.
Short-term trading with the overall price context is the best approach to trade in any financial market. In HODLing, no one knows what might happen in the future. If you buy any cryptocurrency, you may have to hold it for a long time by carrying loss. It will cost time and money. Moreover, there is a history of many cryptocurrencies that vanish for scamming people.
Therefore, traders should focus on profitable trading strategies that apply to the crypto market.
After the above discussion, we can conclude the final decision like:
- HODLing is best for cryptocurrencies where the value is deficient.
- Short-term trading is best for a crypto asset when its value is stable and has a long history.
Overall, the crypto market is very volatile, but it is highly potential as it is backed by blockchain technology. Therefore, investors should analyze the market thoroughly before making an investment decision.