You’ve Got to Know When to HODL

Written by: Lee Sherman

You got to know when to hold ‘em and know when to fold ‘em sings Willie Nelson. He was referring to his card game but he could’ve been referring to another gamble: investing in crypto currency

What is HODL?

HODL is an acronym meaning “hold on for dear life”. It is a financial strategy used by Bitcoin (and other crypto-currency) speculators who hold on to their crypto instead of selling in a bear market.

The word “HODL” originated from a post on the Bitcoin Forum, a community of Bitcoin enthusiasts. On December 18, 2013, a forum member with the handle “GameKyuubi” wrote a post with a title called “I AM HODLING,” “HODLING” being a misspelling of “HOLDING”.

Wrong-headed as it is and predicated on the idea that novice traders, not knowing when to buy and sell, should just hold on for a time when their crypto has value, it has taken on an almost prosaic, everyman tone.

Trading in Bitcoin, the first widely available crypto currency began in 2013. It was volatile but made rapid gains, going from just over $100 in April to over $1,100 by the end of that year. Today, Bitcoin is trading at $41,917.03 today. And the market remains volatile.

Can you make money with Crypto?

Crypto is seductive. It’s convenient, harder to trace, and fits more easily into a world where everything is moving into the metaverse. It’s obvious that some form of digital currency is in our future. And who doesn’t love a get rich quick scheme?

So, does it make sense to hold tight to any Bitcoin you may be lucky enough to hold? While many have seen huge gains, there have also been staggering losses. Crypto proponents love to swat away the naysayers and argue that the market is self-regulating and in the long-run, much safer than our currently mainstream Fiat currency. Many crypto currencies (though not Bitcoin) are actually tethered to our existing monetary system and regulators are beginning to pay serious attention to reigning it in. And crypto types regularly point out that it is not like our monetary system is stable as it is. Governments regularly print as much currency as needed without regard to the “gold standard”.

All you need to do is look at our current runaway inflation to see that markets can be overheated and the Fed can sometimes get it wrong.  In theory, “hodling” can provide more safety to investors, as investors are not exposed to short-term volatility and can avoid the risk of buying high but selling low. But crypto lacks any real financial regulation at all and most financial advisors think of it as a wild-west that is only ready for the most risk adverse of investors. If your stomach is strong enough, and you can survive huge market fluctuations, crypto (and hodling) may be for you.

Another concern is that crypto is so new we don’t have a historical record of performance such as the S&P 500 to place our bets on. And, lacking any regulation from a central authority, crypto is used for nefarious activities such as drug-dealing and money laundering as much as for any “legit” transactions. Remember, crypto currencies, including Bitcoin, Ethereum, Ripple and others are not even accepted as currency everywhere yet and the banning of such currency at various times has led to precipitous drops in the market.

Crypto is not for sissies. You should be prepared to lose everything.

Related: What Is The Point Of Cryptocurrency?

Lee Sherman contributes to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.