HODL: The Reason Behind “Just Hold”

Crypto markets provide investors with plenty of reasons to shift their stance. Substantial price fluctuations are the norm, news can alter sentiment in hours, and social media can amplify optimism and fear.

This can pose a market-timing dilemma, particularly when it comes to short-term movements. Several misjudged moves can leave you in a worse situation than if you had just kept invested. This is why many turn to simply HODL their assets instead.

1What Does HODL Mean in Crypto?

In crypto, HODL (pronounced like "hold"), refers to the choice to hold a crypto asset for the long-term, as opposed to actively trading it according to short-term price swings. This ownership approach is similar to the buy-and-hold strategy commonly seen in traditional investing circles.

HODL means holding a crypto asset for the long term instead of actively trading short-term price movements.

HODL's beginnings trace back to a typo. In December 2013, a BitcoinTalk user by the name GameKyuubi published a post titled "I AM HODLING" (note the typo), as Bitcoin's price was dropping. They were explaining how they were continuing to hold their Bitcoin through the plunge.

The misspelling drew the attention of other Bitcoin users, and became somewhat of an Internet meme in the space. As people began repeating HODL in discussions about holding through volatile markets, the typo stuck and became part of crypto vocabulary.

The popularity of this term eventually inspired the phrase "Hold On for Dear Life", though again, this is a backronym and not the source of the word itself.

2Why Do Crypto Users HODL?

The reasons for HODLing range from spending less time on daily market moves to giving a long-term investment more room to develop. For some investors, it is as much about simplifying decisions as it is about their expectations for an asset.

The reasons crypto users choose HODL.

To Spend Less Time Trading

Trades take time, and even when you're not actively trading, you may still have to keep a close eye on the price, market news, and make decisions as to whether or not to keep your position. 

As such, when you HODL, you can be free of these responsibilities once you've established a position. This, for certain, makes crypto investing easier for those who don't have the time to dedicate to active trading.

To Reduce the Pressure of Short-Term Decisions

Crypto markets provide a constant stream of cues as to what decision to make; be it to sell or to buy. When a rally takes place, FOMO (fear of missing out) can set in; while a dump or bad news emerging can trigger FUD (fear, uncertainty, and doubt). 

HODLing can mitigate this pressure by providing a reason not to treat every short-term move as an immediate decision. 

To Let a Long-Term Investment Play Out

Some investors may buy into a crypto asset because they expect its network, product, or ecosystem to have value and evolve over a longer period of time. Therefore, constantly moving in and out of a position can actually undermine their strategy. 

HODLing then allows the investment more time to develop, and not force the investor to repeatedly predict when the market will recognize that potential. 

3How Does HODLing Work in Practice?

HODLing may sound like a passive approach, but it still involves decisions about why to hold, when to reassess, and what would justify selling. A clear framework helps distinguish a deliberate long-term strategy from simply leaving a position untouched.

In practice, HODLing requires a clear framework.

Start With a Reason to HODL

Before holding a crypto asset for the long-term, it often helps to establish a reason why you're holding it. This is called an investment thesis: a statement that explains what makes an asset valuable to you, and what you expect could support its value over time.

For a crypto asset, the thesis can often be about network adoption, a project's technology or use-case, a demand in a certain blockchain, or the role of a token within its ecosystem. This can allow the holder to have something to point to as to the reasons why they still keep a certain position.

Decide What Would Make You Sell

HODLing is not a blind commitment to hold an asset regardless of what happens. Before buying, an investor should define the developments that would make the original thesis no longer valid.

This can include a project seeing the value of its network adoption plunge, or fundamental change to its technology or token supply. The token no longer capturing the value of the network is a valid reason as well. 

It could also be the investment becoming too risky relative to the investor's circumstances. A change in personal financial goals, likewise, is a common cause of selling, even if the asset itself has not changed.

Review the Position Over Time

Crypto projects can change in the blink of an eye. Adoption can rise or fall, competitors may merge, technology could evolve, and token economics can be modified, you name it.

This is why a HODLer should periodically revisit the original thesis, and determine if the important assumptions hold true. If they do, continuing to hold could be a reasonable decision. In case they’re not, selling or reducing the position is still perfectly in line with a HODL mentality.

4What Crypto Assets Do People HODL?

HODLing is not limited to Bitcoin, but the reasons for holding can differ considerably across crypto assets. The key distinction is what investors expect to sustain an asset’s value over time.

People can HODL many types of crypto assets, not just Bitcoin.

Bitcoin and Other Large-Cap Crypto Assets

Bitcoin and other large-cap crypto assets such as Ethereum are commonly considered for long-term holding, since they will likely maintain a meaningful role in the market over a longer period.

For Bitcoin, that thesis may center on its limited supply, use as a digital asset, or potential role as a store of value. Investors choosing Ethereum, meanwhile, may focus on network adoption, its role in decentralized applications, and the broader ecosystem built around this blockchain.

Altcoins and Smaller Tokens

HODLing altcoins and smaller tokens can involve a different kind of investment thesis. Investors may hold them because they expect a particular project, technology, or ecosystem to gain adoption over time.

The challenge is that these projects can change or lose relevance more quickly. Competition may emerge, adoption may fail to develop, or changes to a token's economics can affect its role and demand.

Memecoins and Highly Speculative Assets

People can also HODL memecoins and other highly speculative assets, often because they expect continued community interest or believe the asset could appreciate significantly.

However, unless there is a clear reason why the asset will remain valuable, someone HODLing an asset alone does not necessarily make that asset a suitable long-term investment.

5What Are the Risks of HODLing?

Choosing to hold rather than trade does not remove the risks of an investment. Beyond price movements, HODLers also need to consider missed opportunities, concentrated exposure, and the possibility of becoming too attached to a position.

HODLing reduces short-term trading decisions, but it does not remove investment risk.

Opportunity Cost Can Build Over Time

Holding a capital in one asset also means letting other assets go. If a position does little or nothing for several years, the cost isn't limited to the money that could have been lost; it can also impact the opportunities that the investor could have taken advantage of. 

A position should, therefore, not only be considered by how well it compares to its original purchase price, but also how it compares to the alternatives available to the investor.

Large Positions Can Magnify the Consequences

HODLing also doesn't specify how large a position should be taken in an asset. Strong belief can lead to larger positions being taken, particularly if they've been HODLing a position for a long period of time and it has significantly appreciated.

If that asset happens to plummet or fail altogether, a concentrated position will likely have worse consequences than a diversified one.

Holding Can Become an Emotional Commitment

There's also a behavioral risk in turning HODL into an identity. The language around HODLing can itself encourage a rigid attitude towards its practice. Phrases such as "diamond hands" can encourage a person to continue holding despite extreme price movements. 

However, continuing to hold isn't always the more disciplined move. If the reasons for owning an asset have materially changed, selling can be a rational outcome even when the original plan was to HODL. The point should, hence, be to remain committed to the investment case, rather than committed to the act of holding itself.

6A Final Word on HODL

The objective of Coinminutes in writing this article is not to tell you whether or not you should HODL. Instead, we hope we've provided you with some of the knowledge needed to understand what HODLing means, why someone may do it, and what to consider when holding crypto for the long term.

Now that you've somewhat grasped the main concepts of HODL, perhaps a deeper look into specific crypto's assets and what makes them worth holding is in queue. Or maybe looking into other approaches of investing in crypto is more so what you're looking for?

If those are the kinds of crypto coverage you're looking for, check out our website at Coinminutes for more updates.