The concept of Hodl in the world of cryptocurrencies
Hodl – this word has become very popular in the world of cryptocurrencies and in the cryptocurrency community itself. Gradually, even a whole strategy for investing in cryptocurrencies appeared. In general, this strategy means holding (not selling cryptocurrencies) no matter what, to the last.
And it all started on December 8, 2013. The famous cryptocurrency exchange Mt.Gox lived out its last days of existence. She no longer paid users. Panic and rumors provoked a chain reaction. Traders began to get rid of Bitcoin, the cryptocurrency rate was rapidly falling. At the time of general panic, the Bitcointalk user under the nickname GameKyuubi wrote his famous post “I AM HODLING”, which means “I hold (Bitcoin)”.
He further explained why he decided to hold Bitcoin and not sell it, as other traders do. He wrote that he is a bad trader because he does not do what all other good traders do, namely, when receiving negative news in a falling market, they urgently begin to get rid of cryptocurrencies, causing a sharp drop in prices and only aggravating the panic. He explained that he would not do as everyone does and would not sell Bitcoin. At the end of his explanation, he admitted that he was drunk and was currently drinking whiskey. This caused his grammatical error.
It is not known what the critical community hurt the most: a grammatical error, the situation itself or the explanation of a drunk person why he does not sell cryptocurrency when everyone sells it. Since then, a new word hodl has appeared in the crypto community, which means keeping the cryptocurrency to the last and not selling it when everyone is selling it.
Later, even an investment strategy appeared – hodl. This is a long-term investment strategy, which means that the user will keep cryptocurrencies and not sell them when cryptocurrencies sell everything, that is, in recession, so as not to provoke a panic even more. This strategy is ideal for long-term investment.
Gradually, the word hodl turned into the abbreviation HODL (Hold On for Dear Life) and this abbreviation means to keep as vital.
Although initially the word hodl was related exclusively to Bitcoin, later this strategy began to be applied to various cryptocurrencies and tokens.
The meaning of this strategy is that in the case of negative news, when most traders try to get rid of illiquid assets in order to either fix profits or reduce their losses, you should not do it, as everyone does. There is no need to sell assets when everyone sells them and, accordingly, the price of an asset falls.
It is necessary to have strong nerves and wait out the situation. Most cryptocurrencies react very sensitively to news. Traders immediately start selling their cryptocurrency assets. The excess of sales over purchases provokes a fall in rates. In cryptocurrencies, the fall is often sharp and further accelerates the further fall. In such a situation, it is difficult to refrain from any actions and not follow the behavior of the majority, that is, not to start selling assets.
However, as statistics and life experience show, usually after a fall there should be an adjustment in rates and the cryptocurrency grows somewhat. But whether the cryptocurrency can grow above the price at which it began to fall is a big question.
The meaning of the hodl strategy is precisely to wait out the fall and sell cryptocurrency on its growth. If the growth is not enough to wait out the fall, that is, if the cryptocurrency did not rise as much as it fell, then this means that you need to wait for a new rise in cryptocurrencies. Such an expectation may last for years.
Bitcoin statistics show that cryptocurrency is developing in waves and after the next rise in Bitcoin rates there should be a long decline. So the previous fall of Bitcoin began just in December 2013 and it lasted until mid-2017, when the cryptocurrency began to grow rapidly.
If we analyze the statistics of Bitcoin, then in the event of a fall in BTC, the cryptocurrency user should not sell it, but wait for years until it grows. The user must be prepared to wait for years. But in the end, his expectation will be rewarded by the growth of cryptocurrencies.
Hodl Strategy Advantage
A hold strategy is a passive strategy. It does not imply action. By and large, the hodl strategy does not even need to follow the news. After all, if you monitor the situation every day, and the cryptocurrency continues to fall, you can not sustain your strategy and sell cryptocurrencies. Therefore, the less you know, the calmer the hodler lives.
At the same time, the hodl strategy is far from suitable for all cryptocurrencies, but only for the most reliable and in demand. To use the hodl strategy, you need to believe in cryptocurrency, in its usefulness, in that, despite everything, the price of cryptocurrency will ultimately rise. Therefore, it is important to choose only the best and most proven cryptocurrencies. Do not forget that the hodl strategy in its original meaning applied only to Bitcoin.
In relation to some little-known token and cryptocurrency, further growth can not wait. An ICO may turn out to be a scam and the token will not cost anything. Developers can quit cryptocurrency development and it will also not cost anything, as there will be no ecosystem of its own.
Therefore, the hodl strategy can only be applied to cryptocurrencies and tokens with a developed ecosystem, with their wallets, exchanges that support this token or cryptocurrency, with their own critical community and supporters.
The importance of the role of hodlers in the development of cryptocurrency
Credit rules the world. Moreover, not only ordinary citizens live on credit, but also entire states. For a long time, the costs of world economies exceed revenues.
Such a difference must somehow be compensated. And states constantly include printing presses that print unsecured money.
Many states have long abandoned the gold standard and the binding of the national cryptocurrency to gold. There is not so much gold in the world to provide the ever-increasing needs of states for money. It’s easier to turn on the machine and print money. This provokes inflation, as the money supply is constantly growing.
Many cryptocurrencies, including Bitcoin, are deflationary in nature. That is, the number of issued cryptocurrencies is limited. As soon as 21 million BTC is released, the release of Bitcoin will cease. Moreover, over time, the size of the miner’s remuneration for the extraction of the block decreases. If initially the miner received 50 BTC for mining blocks, now he is getting 12.5 BTC. The more miners connected to Bitcoin mining, the more complicated the hashing algorithm and the harder it is to mine Bitcoin. Thus, the cost of mining Bitcoin is growing.
The meaning of Bitcoin is that the number of Bitcoin is limited, but the crypto community is growing. The larger the crypto community, the higher the need for Bitcoin, and therefore, the higher its price.
Thus, adherents of the hodl strategy have their own well-founded economic model. It is based on the limited number of Bitcoin (or other cryptocurrencies and tokens) issued and the increasing need for cryptocurrencies in society.
Advocates of the hodl strategy believe that cryptocurrencies will grow along with the growing need for them, especially given their limited nature.
Therefore, if you want to apply the hodl strategy in relation to a cryptocurrency or token, you need to predict the need for society in this cryptocurrency or token, taking into account the number of coins or tokens issued. It is necessary to study whether the number of tokens or coins will increase or, conversely, tokens will be burned, since the team or project is planning to buy back tokens over time.
Speaking about the importance of hodlers, it should be noted that hodlers strengthen cryptocurrencies. They are their faithful allies. When everyone sells cryptocurrencies, scammers are waiting in the wings when cryptocurrencies grow, as they believe in them. Only believing in cryptocurrency can you afford such a thing as a hodl strategy.