What is hodling?

Date Published

11/12/2019

If you’ve spent much time on crypto forums or Reddit threads, you have likely come across several strange terms you weren’t quite able to discern at first – including the term “hodl.” Hodling has become a widely used and understood industry term in just a handful of years, and it also represents a viable and popular investment strategy – particularly to the novice crypto trader.

Here is a breakdown of how the term hodling came to be and what it means within the context of the cryptocurrency space.

The origins of hodl

The term hodling is actually derived from a misspelling of the term holding that occurred on the BitcoinTalk forum in 2013. The price of bitcoin had fallen by nearly 40 percent in 24 hours and one (assumed to be inebriated) forum user took to the platform to announce in all caps that he would be “HODLING” his position amid the panic-inciting decline.

His reason for hodling was simple: he had so little faith in his ability to trade and time the market that he’d decided his best course of action was to merely stand pat and let the market run its course. Once the misspelling took place, it immediately made its way into memes and other forums until it became so popular that it became a technical term within the crypto lexicon.

But what does it actually mean?

Hodling as a strategy

Despite its comical and dramatic beginnings, hodling now represents a legitimate investment strategy when properly utilized. As a philosophy, it avoids reactionary trading in response to short-term price fluctuations and instead promotes buying and holding positions for the long haul.

Hodling essentially says that unless you are exceptionally skilled at trading and timing the market, making quick decisions based on sudden changes is only going to hurt your portfolio more than if you had simply held onto your position and ridden the wave of volatility. This explains how hodling now also functions as a popular acronym for hold on for dear life.

It’s a strategy that often draws scoffs from many mainstream investors, but one that can serve the novice investor quite well due to the volatile nature of the crypto market.

Hodling to combat volatility

Bitcoin is notoriously volatile – as shown by the all-time price chart below – and it can be basically impossible to time the market when prices are rising and falling so rapidly and unpredictably. Hodling can help combat the anxiety and emotion that goes hand-in-hand with that volatility by buying in for the long haul and not stressing over buy/sell decisions.

a historical graph of bitcoin's price fluctuation

But that’s not to say you can simply set and forget your portfolio for years on end. You’ll still need to rebalance on a frequent basis, otherwise crypto can end up dominating your allocations and result in more volatility across your portfolio’s value than it’s prepared to handle.

Hodling for the future

The term hodling initially came about in reference to bitcoin but now serves as a strategy when dealing with crypto investing in general. For those who believe in the long-term future of cryptocurrency, hodling is a beloved concept, particularly if you expect crypto to one day replace fiat currency as a universally accepted method of payment. You may not be hodling to one day sell, but instead hodling in hopes that you’ll never have to.

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Date Published

11/12/2019

Author

First Scribe

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