The approach of purchasing and keeping an asset for an extended time is not new, and its origins predate the birth of Bitcoin. This is where we develop our respective hodl strategy.
Buy-and-hold investment happens when an investor purchases an asset, most typically a stock, and holds it for a long time. Rather than investing your time in the market, this technique just assumes that the asset’s price will rise over time.
Benefits of Hodl Strategy:
A buy-and-hold investment approach has several advantages:
You save money on transaction costs by not trading frequently. You avoid paying higher short-term capital gains taxes since you retain your investments for lengthy periods.
According to the latest Securities and Exchange Commission (SEC), people who take a buy-and-hold approach to invest are more likely to be successful in the long term than those who try to time the market.
It is vital to note that there may be some distinctions between a HODL approach and a standard buy-and-hold investment plan. When consumers take a buy-and-hold strategy to stock trading, they frequently put their money into index funds in the hopes of matching rather than outperforming the market. At the same time, long-term investors expect larger profits.
Is Hodl Investment Reliable for Individual Investment?
You may be wondering whether the HODL approach in bitcoin trading is truly worth it now that you’ve read some of the reasons for and against it. After all, we know that bitcoin lacks the same track record as the stock market.
To address that question, let us return to the 2013 Bitcoin meltdown. Bitcoin’s trading price fell to $506.17 at its lowest point during those few days. Consider what would have occurred if you had engaged in Bitcoin in December 2013 but also hung on to it.
Bitcoin was trading at $35,889.63 at one time on Friday, May 21, 2021. If you bought 10 Bitcoin at their low price in December 2013, your investment would be worth $358,896.30 on May 21, 2021, a gain of more than $350,000. 2
It’s important to note that arguing whether or not a HODL approach is worthwhile. Investing in cryptocurrency is not the same as debating whether or not to invest in cryptocurrency at all. Cryptocurrency is still in its infancy. It is not governed in the same way that traditional investment is. This may expose investors to increased risk. Before you begin investing in cryptocurrencies, as with any other investment, be sure you understand it.
Final Verdict:
The fact that buy-and-hold investing has an established track record is why so many financial professionals encourage it. At the same time, investors must understand the difference between stock investment and cryptocurrency trading. Buy-and-hold investing has generally won out.
Short-term trading is based on market timing. This implies predicting when prices will increase and decrease. Hodl strategy may produce different results than the predictions. Unless you’re a market expert, it’s doubtful that you’ll be able to foresee every market change precisely. HODL eliminates the danger of market timing.