A HODL strategy is where traders hold on to coins for an extended period, regardless of whether or not they are performing or experiencing volatility in the market. It’s about buying and holding onto coins for dear life.
The term is derived from a forum post in December 2013 where an investor wrote: “I AM HODLING” about not selling at the lows and waiting for coins to go back up again. Now, it’s widely used in forums and social media as a funny meme and investors’ way of saying that even though coins might be dropping, they don’t plan to sell until the price rises again.
HODLing helps build your portfolio
If you buy and hold onto coins, regardless of the market conditions, you will end up with a more extensive portfolio overall. Many traders get scared and sell their coins when things aren’t going well. It is usually a bad idea since we’ve seen that bitcoin has an 80% chance of increasing value after a fall or correction in price.
So if you had 100 bitcoins before they fell to $500, instead of selling them for $10,000 (when they eventually go back up to around $20k), you should hold onto them and wait until the price rises again. That way, if you were planning on investing $1,000, you’re now buying more coins and getting a better deal.
You won’t be affected by panic selling
Another benefit is that since we know that the price always goes up again, there’s no need to rush out of the market since you can buy more later. Panic selling happens when the FUD (fear, uncertainty and doubt) reaches a critical mass in investors’ minds where they dump their holdings onto other investors without thinking twice.
This chain reaction continues until panic sets in, and it becomes everybody for themselves as people scramble to sell or “get out” before it’s too late. Unless you plan to cash out immediately, HODLing will protect your portfolio against this kind of market volatility.
You won’t miss out on gains
Selling coins, even if they’re worth less than what you bought them for, means that you’re missing out on future growth. Let’s say that you sell your coins at $10k just because the price dipped to around $8k, only to find out later that bitcoin grows back up to $20k in a matter of days. If you had held onto your coins before the dip and sold after the peak during a bull run, then not only would you have obtained more coins overall but also made a tidy sum from your investment since it increased in value by 20%.
Of course, this can also happen when things are going well for coin prices. If you sell at $20k just because the price went up to $18k, that means you’re only getting half of the coins that you could have.
You won’t be affected by tax regulations
Even though many countries have tax regulations, depending on where you live, they usually bookmark coins based on how much they were worth when you first bought them. If bitcoin trading is at $12k, you HODL, even if it dips below that price, it’s taxed based on its price when you bought it before the dip, not during the dip.
So in most cases, if bitcoins fluctuate in value within a few days, the tax based on that time will not affect your taxes. You’ll be happy to find out when taxes are due that you didn’t miss out on future gains by selling too early or paying unnecessary fees.
You can buy more if things become cheaper
If you buy more later, it is a classic case of buying the dip; we know that bitcoin goes up eventually, so even if it dips in price during a bear market, it’s improbable that it will stay like that forever.
There are many reasons why digital currencies would fall in value. Still, typically there’s nothing wrong with them except for temporary drops caused by FUD which encourages new investors to sell their coins at a loss, creating further downward pressure on prices. If you want to take advantage of these dips, then HODLing is the best strategy since you can buy more coins during an upswing in prices.