HODL

What Is HODL?

HODL is a term commonly used in cryptocurrency trading to describe when traders and investors hold a coin for an extended period regardless of the price increasing or decreasing.

Deeper Definition

HODL is a term derived from a misspelling of the word “hold.” The word “Hold” is frequently used in the financial market as part of an investment strategy known as buy-and-hold. The strategy essentially involves buying an asset and holding it for a period in hopes that the asset’s price will go up long-term despite unfavorable short-term market movements. The term “HODL” originates from a 2013 post on a cryptocurrency forum, Bitcointalk. A forum user, GameKyuubi, created a post entitled “I AM HODLING” shortly after a move by the Chinese government caused the price of Bitcoin to fall drastically from $716 to $438 within a day.

In the typo-laden post, GameKyuubi ranted about his poor trading skills, saying: “WHY AM I HOLDING? I’LL TELL YOU WHY. It’s because I’m a bad trader and I KNOW I’M A BAD TRADER.” He attributed his decision to adopt the buy-and-hold investment strategy to his lack of understanding when to buy or sell. He explained, “I SHOULD HAVE SOLD MOMENTS BEFORE EVERY SELL AND BOUGHT MOMENTS BEFORE EVERY BUY BUT YOU KNOW WHAT NOT EVERYBODY IS AS COOL AS YOU.” GameKyuubi finished off the post by revealing he drank whisky before posting. After that incident, cryptocurrency users created memes with “hodling,” The term soon became a popular slang within the community.

The crypto market is generally characterized by volatility. Prices rise and fall several times within days, weeks, and months. For many newbie traders, keeping up with these short-term price movements is frustrating. A coin’s price may fall by 50% in a month and rise by 200% within the next few months. Often, traders try to time the market by selling high and buying back when the price falls. Experienced traders may successfully get away with that strategy. However, inexperienced traders can incur severe losses. “Hodling” allows traders such as GameKyuubi to ignore short-term swings and focus on long-term gains.

HODL Example

After reading online that cryptocurrency is a must-have investment in this century, Lisa decided to invest her money in Bitcoin. The week she invested, Bitcoin’s price fell by 5%, and she panicked and sold at a loss. The following week, Bitcoin’s price rose by 7%, meaning if Lisa had not sold, she would be in profit. Seeing that it is impossible to time the market accurately, Lisa buys Bitcoin again and decides to hodl it for two years.