If you want to be a long-term cryptocurrency investor, you have to learn how to hold a cryptocurrency you own. This might seem like an easy task at first, but it isn’t. Most of you know that cryptocurrencies are known for their volatility but have you put any real thoughts into it? The crypto market can decline for several days or even months. If you want to be a pro hodler you have to learn how to handle this kind of pressure.
HODL – Meaning of the term
This term is used several times in the article, but do you even know its real meaning and origin? If not, hear a story of one of the most intentionally used typos in the cryptocurrency world. It all began in December 2013 when an investor on BitcoinTalk.org wrote a message in which he accidentally made a typo “I AM HODLING”. Since then, this slang has been heavily used by the crypto community and it refers to “hold on for dear life”.
How to approach holding
Some traders think that if a cryptocurrency was increasing in the last year, it will do the same this year. You should, however, remember one thing. And that is past performances are not a good indication of future results. My tip is, therefore, not to pick a cryptocurrency just on the basis of its past results. A better approach is to make sophisticated research that consists not only of the price history but also of cryptocurrency development, plans for the future, mining situation, marketing, regulation etc.
Cryptocurrencies as a store of value
The price of a cryptocurrency is crucial if one focuses on short-term trading. When holding, the current price is quite irrelevant. You want to pick a cryptocurrency that you can confidently hold for a number of years. Whether its price decreased or increased by 20% in the last month is not of vital importance. What is, however, imperative is the potential of a cryptocurrency. Does the coin we picked solve anonymity, security or transaction speed issues? If so, there might be a very good market for this. Speaking more generally, if the cryptocurrency has no use and can not help us solve some of our daily struggles, it has no future.
Advantages of long-term holding
Both day trading and long-term holding have their own pros and cons. I see two great advantages from the point of a hodler. Firstly, we have to talk about time efficiency, which is in today’s life extremely important. Unlike day traders, holders save tons of time as their research is done only before a purchase of a cryptocurrency. Once they obtain it, they do not regularly scan the market, whereas day traders have to go through this phase each and every day. Secondly, we have to mention reduced transaction costs. Hodlers save a great amount of money on fees associated with buying and then again selling cryptocurrencies they own.
Holding cryptocurrencies – Different risks
Each and every cryptocurrency is differently risky. Generally speaking, high market cap coins are less risky than the small ones. On the other hand, middle and low-cap cryptocurrencies can possibly bring higher returns.
- Low Risk- no cryptocurrency
- Moderate Risk – BTC, Ethereum
- High Risk – middle/low cap coins