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Value Investing The Original HODL strategy

05 Jan 2023

In 2013, a post on the bitcointalk forum coined the phrase HODL. Bitcoin's price has risen from under $15 in January 2013 to over $1,100.

  • What Is Value Investing and How Does It Work?

Value investing refers to buying companies that seem to be trading for less than their intrinsic value. Value investors look for companies that they believe are undervalued by the market. They believe the market reacts badly to both good and bad news, leading to stock price movements that are unrelated to a company's long-term prospects. The market's reaction offers a chance to profit by buying stocks at a discount.

  • HODL as a Value Investing Strategy

HODL quickly became a catchphrase for a cryptocurrency investing strategy that avoids trading based on short-term price movements. This strategy is similar to rookie traders who are more likely to fail in their attempts to timing the market and lose money or make less money than if they simply kept their coin.

Aside from short-term fluctuations, bitcoin's long-term volatility contradicts conventional logic. From 2011 to 2013, the price increased by 52,000 percent before plummeting by more than 80% the following year. It has since risen to more than 17 times its previous peak before plummeting by half. Throughout the cryptocurrency's history, logical arguments have been presented that it would go "to the moon" or crash to zero.

Hodlers sweep away all of this turbulence and prognostication. For hard-core cryptocurrency aficionados, HODL represents more than a means for controlling profit-eroding emotions. True believers hoard because they believe cryptocurrencies will eventually replace fiat currency as the basis for all future economic relationships. As a result, they consider the cryptocurrency exchange rate to be useless.

  • Advantages

Not dependent on market timing: Short-term trading relies on market timing, which requires you to estimate when prices will rise and fall. It's unlikely that you'll be able to precisely foresee every market shift unless you're a market specialist, which most individuals aren't. HODLing eliminates the dangers of market timing.

- Long-term capital gains taxes apply to profits: Capital gains from assets kept for longer than a year are taxed at a lower rate than gains from assets held for less than a year.

  • Drawbacks 

- Cryptocurrency hasn't been around for very long: With buy-and-hold investing, you can look back on decades of performance and see how market trends have shifted upward over time. Indeed, the first stock exchanges were established in 1792, providing us with literally centuries of data to analyze. However, since Bitcoin is just a decade old, there's no guarantee that it will continue to rise in value indefinitely. As a result, we have no way of knowing if a value investing strategy will work in the case of Bitcoin.

- Long-term capital commitments: Your money cannot be spent on other things if it is invested in the market for many years, if not decades. If you plan to utilize money in the next several years, HODLing may not be the best method, so be sure you have the funds set aside for investments.

Wrapping Up

HODL is frequently explained as an acronym for "hold on for dear life" or a variant on that theme. While these etymologies sometimes do a decent job of conveying the sense of the word, they are not how it came to be. In 2013, a lucky misspelling resulted in the name HODL.

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