Holding cryptocurrencies, also known as hodling, became a very recognized strategy to do in the cryptocurrency market. This is due to the fact that it has many advantages for investors that do not like volatility or that do not prefer to trade virtual currencies.
In this article, we will be sharing with you some of the advantages and disadvantages of the hodling strategy. With you, you will have more knowledge about whether this is a good strategy for you or not.
Disclaimer: All the information provided by AltSignals and its writers shouldn’t be taken as financial advice. The article has been created for educational purposes. Never invest more than what you are able to lose and only ask for advice to your personal financial advisor.
What Does HODL Mean?
Holding cryptocurerncies is one of the most popular strategies that you will see in the cryptocurrency market. Why? Because investors do not need to be worried about volatility or short-term issues in the market.
The HODL strategy consists of users buying Bitcoin (BTC) and other cryptocurrencies waiting for long-term returns. Although this seems a good strategy, it also has its own disadvantages that we will share with you in the following sections.
Advantage 1 – Participate in the Cryptocurrency Market Without Effort
This is one of the main benefits of investing in the hodling strategy. By acquiring cryptocurrencies for the long term, you don’t need to be worried about buying and selling at all times, paying for fees and other time-consuming activities this could lead to.
This passive investing strategy has been working for investors not only in the cryptocurrency market but also in traditional markets. You need to be sure that the funds are protected in a hardware wallet and far from the reach of stealers. As long as you keep your private keys, you can wait as long as you want to sell the funds you acquired over time.
One of the things that are advised to do is to add more funds to your portfolio when the price of the asset you purchased falls. This would provide you with greater exposure and potentially larger gains in the future.
For example, during the 2016 and 2017 bull market, cryptocurrency traders were able to get large returns on their investments thanks to performing holding strategies. However, it is worth mentioning that after the bull market, a bear trend started that pushed Bitcoin to the lowest level in more than an entire year.
This is why strategic holders (if they didn’t buy above $13,500) have already been able to recover their investment or get a profit.
Advantage 2 – You Can Dollar Cost Average Bitcoin
The dollar cost average Bitcoin strategy can be included inside the holding one. With it, users will have the possibility to add funds to their Bitcoin wallet on a daily, weekly or monthly basis without necessarily selling them.
In this way, you can think about your long-term strategy protecting you from buying large amounts of the cryptocurrency when the price is at a peak or when it could be lower. You can use this strategy without necessarily owning a lot of money, considering you can purchase small amounts of BTC every week or month.
This strategy can be performed not only with Bitcoin and cryptocurrencies but with many other financial assets.
Advantage 3 – Reduces Stress
By following the holding strategy, you will be able to reduce the stress of buying and selling BTC or other cryptocurrencies at all times. In addition to it, it will reduce the time you will spend looking at the charts.
Although this may sound like a silly advantage, it shouldn’t be considered as such. Indeed, if we are stressed because we are long periods of time looking at the charts and waiting for the price to reach a specific level, we can end up making bad decisions. This could have a negative financial impact on our portfolios that we want to increase over time.
Although it will not make you 100% free from stress, it will help you improve your mood and other activities you perform. For example, during periods of large volatility, traders may have to open the charts several times a day in order to understand whether they are making profits or not. If you like to be trading Bitcoin and cryptocurrencies several times a day, or perform swing trading activities, then this is certainly not your strategy.
Disadvantage 1 – It Could Be Less Profitable than Active Trading
Active trading may offer better results to investors in the market. Indeed, they could get better results by investing digital assets and having a look at the charts on a daily or weekly basis rather than holding over time.
If you see that the market is reaching a peak (for example as in 2017 when Bitcoin reached $20,000), the best idea would not be to keep holding but to sell close to the highs. This would provide you with better results than holding throughout a bear market or several years without being able to recover the funds invested.
Nonetheless, as we mentioned before, this could require you to invest more time on a daily basis compared to a traditional holding strategy.
Disadvantage 2 – You Could Lose Your Funds
Many traders do not even remember where they leave their funds. They considered that they could have access to their wallet and suddenly they realize they lost their private keys. This is something that happens more times than what we can imagine, and it can be certainly damaging to the financial life of a person.
This is why it is certainly important if you are following a holding strategy to usually control your wallet. Make small transactions to see everything works as it should, and keep your funds properly stored with the respective private keys.
In this way, the holding trading strategy becomes more efficient and you would avoid unwanted mistakes and errors that could cost your entire portfolio. Remember, some of the best wallets currently available in the market include the Ledger Nano S and the Ledger Nano X.
Despite the positive effects of a holding strategy, remember to always have backups of your private keys and the wallets you handle.
Disadvantage 3 – It Can Take a Long Time to be Profitable
Although holding may be a good strategy for long-term holders, it may not be suitable for traders that are searching for fast profits in the crypto market. Indeed, for the last group, it would be better to perform swing and day-trading activities.
A hodling strategy could take up to several years to bring profits to users. Indeed, if you didn’t average buy Bitcoin, it may be even harder to be profitable. Let’s suppose you didn’t average Bitcoin and you bought the virtual currency when it was over $13,500. This price was only available for just a few days in Bitcoin’s history.
If you acquired BTC above $13,500 and never sold since then, these funds are yet in losses considering Bitcoin couldn’t surpass that level again since early 2018.
Moreover, if you bought close to $10,000, you might have the possibility to get a profit of 20% in a shorter period of time.
Conclusion
In this article, we have shared with you which were the main advantages and disadvantages of the hodling strategy for Bitcoin (BTC) and cryptocurrencies in general. Of course, it can be a good strategy for many users but not an ideal strategy for other traders and investors. Everything depends on which are the goals you have established for your investments and in which period of time you want to get your investment back.
Of course, there are other advantages and disadvantages that traders and investors in the market will be able to discover over time. This article is a great starting point to understand how Bitcoin works and how it behaves as an asset to hold over long periods of time.
Although these advantages and disadvantages could apply to other digital assets, Bitcoin is the largest and most popular cryptocurrency in the world. The advantages and disadvantages of other digital currencies could be different if we take into account their unique features and market behaviours.
Nonetheless, holding at least a small amount of BTC in the long term could be profitable. However, always remember to never invest more than what you are able to lose and to take all the content in this article as investment advice.
