There is this misleading notion that cryptocurrency investors are mostly speculators — a euphemism for gamblers.
Gamblers, unfortunately, are drawn more by the thrill of making a quick buck, not on the underlying technology that makes the emerging asset class interesting. Gambling is spinning dice, nothing more. It is a game of chance — which can be dangerous, explaining the many disclaimers written in bold, warning those who intend to punt on crypto prices.
However, taking a look at cryptocurrencies and blockchain objectively, the sphere is rich with opportunities. The underlying technology is untested, and one of its main applications is cryptocurrencies, which are now wildly popular.
According to CoinMarketCap, a crypto tracker, there are over 10.9k unique blockchain-based projects. All of them offer various value propositions, riding on existing chains as tokens or launched from the ground up as unique ledgers proposed to solve existing challenges in legacy blockchains, mainly in Ethereum.
It is the proliferation of these projects that might call into question the valuation of some legacy projects. At peaks, Bitcoin topped $64k apiece, putting its valuation at over $1.3 trillion. Meanwhile, Ethereum soared past $4k to reach $4.2k as the community flocked to the network, hoping to strategically tap the rise of DeFi tokens, maximizing their returns. Bitcoin and Ethereum are leaders in their categories. Bitcoin has morphed into a dual-platform serving as a medium-of-exchange and a store-of-value like money and gold, respectively.
Analysts reckon that gold's physical existence has proven to be its Achilles Heel despite acting as a reserve for central banks and governments. Therefore, the rise of Bitcoin, a digital crypto-asset with fixed supply and deflationary by nature, makes it a natural alternative for gold. They further project a market cap of around $4 to 5 trillion for Bitcoin, easily placing its price at over $200k.
On the other hand, Ethereum, which is widely adopted as a smart contracting platform, can spearhead the world's transition to full Tokenization. ETH is not just a transactional conduit in Ethereum. It serves as "fuel" to pay transaction fees required for a smart contract to be executed.
If Tokenization happens in Ethereum, it will demand transaction fees to be lower, even below current rates of $2, as this shift would translate to countless micropayments, pumping Ethereum valuation to at least $1 trillion. As a utility, ETH would benefit more than tripling from spot rates above $20k. However, as this happens, end users would want a cheaper platform, meaning transaction fee, that is, Gas, is affordable. If not, Ethereum will lose users as alternative networks like Cardano, Solana, EOS, and others tap maximum benefit from the resulting migration. Unlike Ethereum 1.0, these alternative platforms are energy efficient and cheaper to use.
This kind of top-down approach and analyzing assets from a long-term perspective is not in the purview of speculators. The long-term game is for masters who are aware of the intrinsic value proposition of each platform and the role played by each of the platform's utility assets. Early Bitcoin and Ethereum adopters/investors, for perspective and comparison, were not speculators. They weren't interested in "scalping or swinging" prices but were rather invested in the technology, even acting as evangelists.
Valuable lessons can be drawn from early crypto investors who chose to see past short-term price volatility and concentrated on the solutions their respective investments offered. Early adopters of leading projects like Ethereum, Bitcoin, Zilliqa, and other high market cap cryptocurrencies are now immensely wealthy.
More than a decade later, cryptocurrency and blockchain are still considered nascent and emerging asset classes, an opportunity. Ambitious retailers can emulate the HODLing strategies used by early birds to tap benefits from the fast-evolving sphere.
For example, Dacxi, a 'crypto wealth' platform, allows retailers to invest in cryptocurrencies using creations like pre-assessed crypto bundles. Through this platform, investors can build and accumulate wealth from cryptocurrencies by looking at the long-term.
Extending from this strategy, more crypto wealth-building projects such as Beijing-based BlockVanguard Capital—which wants to bring blockchain into the mainstream—and U.S.-based BlockTower Capital, among others, are already providing financial and investment services to retailers promoting the culture of HODLing.
1. HODLing helps you avoid market volatility
HODLing is the buying and holding strategy where investors hold their crypto assets for a long period of time. These investors seek to profit from the long-term appreciation of their crypto assets. The fact that you are HODLing for an extended period of time means you will not be troubled with the constant price volatility of the crypto assets. All you have to do is buy and hold while also monitoring the price appreciation. When the price appreciates to the point you have made a good profit, you can sell off, take your profits and reinvest the capital if you so desire. Trading crypto assets means that you will be exposed to short-term vitalities in the market, and you can lose a lot of money in such market conditions.
2. HODLing requires little or no technical know-how
In HODLing, all you have to do is buy the coin and hold it as long as you want until the price appreciates for you to sell. HODLers don't need to be experts in technical analysis, fundamental analysis, etc. All that is needed is for the investor to know the long-term potential of the crypto asset. The opposite is the case in trading. Traders must have an in-depth knowledge of technical analysis in order to understand price direction in the short term. A lot of things can go wrong in such situations.
3. It helps you to save money
HODLing requires that you make a few trades in order to take a position. Therefore, HODLers don't have to pay a high amount of fees in commission because the frequency of trades in reduced. In fact, investors can pay lesser or even zero taxes on their capital gains from crypto are they hold their position long enough. However, regulation varies from one region to another. Therefore, always know what is obtainable in your region.
4. High Return on investment
HODLing earns you a massive profit that trading is very less likely to earn you. For instance, if you bought BTC around June last year, you would have made a 225% profit had you sold your coins when BTC hit $63,000 earlier this year. The price of BTC was around $12,000 around August last year, and it is currently trading above $40,000. Arguably, no other investment can give you such a massive return on investment within a single year.
5. A less stressful way of making passive income
With HODLing, crypto investors don't need to monitor and study the market trends constantly. They have to hold and keep an eye on the price for when it will hit the target they have in mind. These HODLers make huge profits with little risk, unlike traders.
6. Buying Crypto in bits and at different intervals
HODLing allows investors to add funds to their portfolios daily, weekly, or even on a monthly basis. In this way, investors can mitigate against buying large amounts when the price is at its peak. Also, you don't need to have a huge amount of money to use this strategy because you can buy small units of your crypto asset daily or weekly.
7. You become more updated with the latest happenings in the blockchain and crypto industry
Crypto HODLers are more interested in what is happening in the blockchain industry as they seek to know the things that can impact their long-term positions. HODLers become active participants in the market. However, they don't worry about price fluctuations. Instead of being worked up about the volatility, they are more interested in the real developments happening in the industry.
8. Builds belief in the future of crypto assets
HODLing crypto assets mean that the HODLers trust in the future of their holdings, and they believe in its potential. Unlike trading, where people are more interested in making quick cask from the market's price fluctuations, HODLing teaches people to trust in the future of crypto projects.
9. People are more likely to lose their seed capital in trading than HODLing
Last month, about $900 million was lost in crypto short positions when BTC's price went over $40,000. In such a scenario, many traders lose their seed capital in the process. Such things are very less likely to occur in HODLing.
10. HODLers buy and sell whenever they want
HODLing gives investors a free hand to decide when to sell their position without considering the market fluctuations. It can be in the next 6 months, 1 year, or more. The goal is to make a massive profit on their holdings in the long term.
While HODLing is a great investment strategy in the crypto market, it also comes with its own pitfalls. There have been instances where some HODLers forgot the password of their private keys, thus not having access to their crypto assets. HODLers also have to deal with the fear of missing out, or FOMO, as well as fear, uncertainty, and doubt, or FUD, as they choose to hold for the long term.
The author does not have any vested interest in the projects mentioned above.
The opinions in this article belong to the author alone. Nothing in this article constitutes investment advice. Please conduct your own thorough research before making any investment decisions.
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