It takes some available risk capital and faith to invest in cryptocurrencies. Putting your money into assets with an uncertain use and no intrinsic value also takes a healthy store of patience. That’s where the HODL — Hold On for Dear Life — philosophy comes in.
Origins of the Term HODL
It was 2013, and the value of Bitcoin was falling fast. The digital currency promising an entirely new world of money — one free of regulation, supervision or control by big banks and governments — was struggling.
In December of that year, China banned Bitcoin altogether. The market reacted to the news by cutting the Bitcoin price in half. Investors on the “buy side” were marking significant losses.
One such was GameKyuubi, a true Bitcoin believer who, on December 18, made his opinion well known on Bitcoin Forum. Above a sincere promise to stay invested no matter what, the poster defiantly stated, “I AM HODLING.”
In the following paragraph, GameKyuubi laid out the true HODL meaning as they saw it: “You only sell in a bear market if you are a good day trader or an illusioned noob. The people in between hold. In a zero-sum game like this, traders can only take your money if you sell.”
What Does HODL Mean in Investing?
The post and its misspelled title, which the author claimed to misspell deliberately, became an anthem in text for dedicated cryptocurrency investors. It represented their faith that Bitcoin, Ethereum and other digital monies had a future as a medium of exchange and weren’t just a gimmick or a fad.
I AM HODLING was truncated to the simple acronym HODL, or Hold On for Dear Life. This rallying cry now serves not just crypto investors but anyone losing funds in a down stock market.
Market timing, according to this approach, is a loser’s game. Predicting short-term price swings is impossible, as unseen forces and unpredictable events move valuations daily.
Successful investing means thoroughly researching and carefully evaluating the asset before putting any capital at risk. Once that’s done, one should invest for the long term and fully expect swings in price.
According to one analyst on the financial site Benzinga, Bitcoin typically suffers an 80 percent to 90 percent drop during its bear markets. But for HODLers, selling out of panic is the wrong move. Eventually, Bitcoin and any good investment will reward the patient.
What is the HODL Method?
Cryptocurrencies are volatile for several reasons. Since these digital assets have only a limited use, they’re difficult to evaluate as investments. The price goes up and down on market sentiment; in other words, the fear of the investing masses. When fear prevails, prices fall. When confidence returns, prices rise.
The losses pile up in times of uncertainty when markets are in flux, and the economic future is clouded by recession, inflation and other ills. In the summer of 2022, for example, while inflation raged worldwide, the Bitcoin crash increased in intensity, and several trading sites went out of business.
Although short-term day traders may attempt to time these big market swings, the HODL investor isn’t wired for that kind of risk and drama. As GameKyuubi explained, “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.”
That’s the HODL method in a nutshell: self-knowledge. By staying in tune with one’s abilities and taking emotion out of the equation as much as possible, the HODLer proceeds with confidence that with time, the cryptocurrency thesis will play out successfully, and the investment will turn a profit.
They generally hold their position for whatever extended time they deem appropriate, no matter how bad the market landscape may appear in the interim.
Will You Practice HODL?
Before doing any research or putting any money at risk, savvy investors devise a plan. They assume that, with any long-term investment, something will eventually go wrong during the market’s turbulence. To avoid making bad decisions prompted by fear, they decide what to do about the inevitable bad news ahead of time.
Setting a specific target price is one way, but a sudden drop or rise should be factored in. Has the market generally been affected by statistics, such as jobs or inflation numbers, interest rates or oil prices? Is there some breaking political or military conflict that’s creating a “risk-off” market? How will the reasons for the market action affect your investments? How much risk in the future can you reasonably handle?
The sell decision can be challenging because it means either admitting you were wrong or the market won’t improve. But HODL doesn’t necessarily mean being stubborn. It means investing with patience. Making a plan for when you’ll consider selling the asset is a big step in improving that all-important patience level.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- CoinDesk. 2022. "China Crypto Bans: A Complete History."
- Bitcoin Forum. "I AM HODLING."
- Benzinga. "WHAT DOES HODL MEAN?"
- Fortune. 2021. "Bitcoin has no uses. That could be its downfall."
- Decrypt. 2022. "The 2022 Crypto Crash."