Do you remember the term “pwned” in the early 2000s? It developed a life of its own and was used on the internet for years.
It was revealed that someone had made a typo while playing a video game. While the mistake is understandable because of the proximity of “o” and “p” on the keyboard, it transformed into quite the meme before the memes were born.
Well, today, there is another term that is quite popular in the cryptocurrency ecosystem: HODL.
So, what exactly is HODL anyway? Let’s dive deeper into the crypto culture and understand the term’s origins.
In the financial markets, traders have FOMO, which stands for the “fear of missing out.” In the cryptocurrency markets, investors will HODL, which now means “hold on for dear life.”
The typo was made in a December 2013 crypto forum Bitcointalk, and a user had informed everyone that “I AM HODLING.” It quickly went viral across the crypto world.
As the years went by, HODL has become a financial concept of rewarding long-term investors during times of enormous volatility in the crypto space.
For example, if crypto traders held onto their assets during the 2022 bear market and maintained their holdings in the bull market returns in 2023, they will undoubtedly be identified as HODLers by the end of the year. The same applies to anyone who has continued to trade Bitcoin since the early days of cryptocurrency, as the market has gone through its peaks and valleys on multiple occasions.
Put simply, if you possessed $1,000 in Bitcoin on the day of that world-famous post, you would be worth a fortune today.
It is essential to note that turning a blind eye to short-term market volatility in favour of concentrating on the big picture is not necessarily new to the financial markets. This has been the mantra for long-term value investors for decades, including legendary billionaire Warren Buffett:
· “Only buy something that you’d be perfectly happy to hold if the market shut down for ten years.”
· “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
· “Our favourite holding period is forever.”
· “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Of course, the HODLers and the value investors might possess different tactics. The former might depend on a passion for the crypto industry. At the same time, the latter may focus on fundamental measurements, such as price-to-earnings (P/E) ratios, the relative strength index (RSI), or moving averages.
Meanwhile, critics will contend that HODLing has turned into cult-like behaviour, be it in the crypto space or on a web forum like Wall Street Bets on Reddit. In other words, rather than relying on elementary metrics to determine if something is worthwhile to hold for longer than a single session or week, it has transformed into zealotry for some investors. Sometimes it pays off; sometimes, it does not.
But this does not mean HODLers should be dismissed. Instead, their philosophy is worth considering and adopting.
During the meme stock frenzy of 2021, when stocks like AMC and Gamestop soared double- and triple-digit percentages in one session, many traders earned and lost immense amounts of money. The FOMO kicked in for people sitting on the sidelines who wanted a piece of the action, but by the time they bought in, shares peaked and headed downward. There were too many bag holders. However, for the long-term investors who believed in the potential of these businesses and saw discounts before the meme craze, they generated significant profits.
In the end, HODLers can educate investors that it is better to be a long-term value investor than a day or swing trader. Over the years, studies have found that long-term investors garner better returns than retail investors trying to time the market and score a payday by buying and selling stocks over a few hours.
Cryptocurrency has been a terrific exhibit of the HODL strategy. But, as Buffett noted, you should buy a company that would be worth holding if the market shut down for a decade. Would it be worth holding, er, HODLing Bitcoin, Ethereum, Dogecoin, or Cardano for the next ten years? Twenty years?
No doubt there will be ups and downs. Markets are cyclical. If you believe in something after doing your research and due diligence, it is critical to hold onto these assets, even when the noise is drowning out the solid long-term fundamentals.
