In the cryptocurrency industry, holding cryptocurrencies, also known as hodling, has become a well-known technique. This is due to the fact that it offers many benefits to investors who dislike volatility or choose not to trade virtual currencies.
What does hodl means?
One of the most popular strategies you'll see in the cryptocurrency market is keeping cryptocurrencies. What is the reason for this? Since investors do not have to be concerned about market fluctuations or short-term problems.
The HODL strategy entails consumers purchasing Bitcoin (BTC) and other cryptocurrencies with the expectation of long-term gains. While this seems to be a successful plan, it does have some drawbacks, which we will discuss in the following.
The Advantage of Hodling
1. Take Part in the Cryptocurrency Market Effortlessly
This is one of the most significant advantages of using the hodling technique. You won't have to worry about constantly buying and selling cryptocurrencies, paying taxes, or other time-consuming things if you buy cryptocurrencies for the long term.
This passive investing approach has proven to be effective for investors in both cryptocurrency and conventional markets. You must ensure that your funds are safe in a hardware wallet and out of reach of thieves. You can take as long as you want to sell the funds you've amassed over time as long as you keep your private keys.
When the price of the asset you bought drop, one of the things that is recommended is to add more funds to your portfolio. This will give you more publicity and, hopefully, more profit in the future.
2. You Can Calculate Bitcoin's Dollar Cost Average
The holding strategy can be combined with the dollar cost average Bitcoin strategy. Users would be able to deposit funds into their Bitcoin wallet on a regular, weekly, or monthly basis without having to sell them.
This allows you to consider your long-term plan, which protects you from purchasing large quantities of cryptocurrency at a high or when the price is likely to fall. You can use this technique even if you don't have a lot of money because you can buy small amounts of BTC every week or month.
This technique can be used for a variety of financial assets, not just Bitcoin and cryptocurrencies.
3. Stress is lessened.
By sticking to the holding strategy, you'll be able to avoid the stress of constantly buying and selling BTC or other cryptocurrencies. It will also cut down on the amount of time you spend looking at the maps.
While this might seem to be a frivolous benefit, it should not be overlooked. Indeed, if we are exhausted from staring at the charts for long periods of time waiting for the price to hit a certain amount, we can make poor decisions. This may have a negative financial effect on our portfolios, which we are attempting to develop.
While it will not make you completely stress-free, it will assist you in improving your attitude and other habits. Traders can need to open the charts several times a day during periods of high volatility, for example, to determine if they are profiting or not. This is not the plan for you if you want to trade Bitcoin and cryptocurrencies several times a day or engage in swing trading.
The Disadvantages of Hodling
1. It's possible that it'll be less profitable than active trading.
Active trading can provide investors with better market results. Indeed, rather than keeping over time, they could get better results by investing in digital assets and checking the charts on a regular or weekly basis.
If you see that the market is approaching a peak, the best strategy is to sell near the highs rather than hold. This would be preferable to holding during a bear market or for many years without being able to recoup your investment.
However, as previously said, relative to a conventional holding approach, this can necessitate more regular time investment.
2. It's possible that you'll lose your money.
Many traders have no recollection of where they put their money. They thought they might be able to get into their pocket, but then they realized they'd misplaced their private keys. This happens much more often than we can imagine, and it can be very devastating to a person's financial situation.
This is why, if you're pursuing a holding approach, it's important to keep your wallet under control. Make small transactions to ensure that everything is working correctly, and keep your funds safe with the appropriate private keys.
As a result, the holding trading strategy becomes more effective, and you avoid making costly mistakes and errors that could wipe out your entire portfolio.
Regardless of the advantages of a holding strategy, make sure you have backups of your private keys and the wallets you manage.
3. Profitability can take a long time to achieve.
Although holding may be a good strategy for long-term investors, it may not be appropriate for traders looking for quick profits in the crypto market. Indeed, swing and day trading practices will be preferable for the last activity.
It could take many years for a hodling strategy to pay off for users. Indeed, if you didn't average buy Bitcoin, it would be much more difficult to make money.
What are the types of coins you are holding?