From Hodln and Investing in Bitcoin

We read and hear this word all the time in the crypto community: Hodl. But where does the term actually come from and what does it describe? What strategy and behaviour does it imply? Why is long-term investing not always easy and what value does Bitcoin actually have?

Against the background of the current price development of Bitcoin, we see it as important to convey the basic idea of Hodln to our community and to remind them of it again. In addition, we would like to go into a few important aspects that play a decisive role when investing in Bitcoin and Hodln.

"I AM HODLING" - the long-term strategy for success

To begin with, we would like to link you to the legendary, original forum post by the user GameKyuubi. At the end of 2013, in the forum, he shared his reasons for holding Bitcoin over a bottle of whiskey. Despite the grammatical errors and his crude choice of words, he hit the nail on the head with his argument.

At the moment, we are seeing a correction of around 35% in BTC, measured against the last all-time high of around USD 69,000 per bitcoin. If you take a closer look at the bull runs of the last few years, you will find price corrections of up to 45% there as well. Many hodlers have the following in mind during such "dips": hold their current holdings and/or buy some Bitcoin later. The act of hodlng is basically a prerequisite if you want to invest for the long term. Indeed, an investment is defined as follows: "A long-term commitment of financial resources in tangible or intangible assets".

Hodl vs. Trade

Small investors and investors seeking quick and above-average profits, on the other hand, try to catch the "top" and "bottom" (local high and low of a price change) as often as possible. However, it is almost impossible to always precisely identify these optimal buying and selling points.

Often long positions are then opened with the use of leverage and disproportionately high risk - positions that could already be liquidated with a small price correction. The trading path is marked by successes and failures and undoubtedly costs more nerves than the hodln. This chart illustrates the two different strategies very well.

However, due to volatility, even Hodler's portfolios record losses from time to time - at least on paper. This brings us to the next important point.

Realised profits/losses vs. unrealised profits/losses

The crypto market is extremely volatile and every sustained upward movement needs a breather here and there. These corrections and consolidation phases usually amount to several tenths of a percentage point for Bitcoin and other cryptocurrencies due to the high volatility. Many small investors tend to sell their coins in such moments and want to "save what can be saved". In the case of such a panic sale below the entry price, one can then speak of a realised loss.

In contrast, if you don't sell, you don't realise losses or profits. This is one of the big differences between traders and hodlers - hodlers do not have to and do not want to sell early, they hold their assets for months and years. This creates a rational basis for a considered and intentional sale, where profits can be realised as planned.

But many Bitcoin hodlers will not sell their BTC at all and will leave their values in BTC, and for very good reasons. Bitcoin is an ideal long-term store of value and makes it possible to transfer values into the future. So hodln doesn't always have to be about selling your BTC for EUR or USD at some point. For those who recognise the fundamental value of Bitcoin, it is a matter of course to secure their values in Bitcoin.

Of course, long-term holding does not make sense for every coin or asset. There are also enough coins and tokens on the crypto market that have been permanently losing value for years. With Bitcoin, however, this strategy definitely makes sense, as can be seen in the following example with chart:

Bitcoin Chart

Let's assume Horst Hodl bought a Bitcoin for just under USD 20,000 during the all-time high in December 2017. One year later, in December 2018, this Bitcoin was actually only worth around USD 4,000. This corresponds to a considerable (unrealised) loss in value of almost 80%.

But Horst Hodl is not thinking of selling - he knows that this price in USD is far below the actual value of a Bitcoin.

Almost three years later, in November 2021, the price of one Bitcoin is USD 69,000, which corresponds to an (unrealised) gain of 248% for Horst, who is happy to have simply hodlled.

Bitcoin Investor vs. Altcoin Day Trader

Cryptocurrencies have gained enormous popularity and interest over the last few years. Nowadays, you can buy and trade Bitcoin and Altcoins on numerous online exchanges, which until recently only offered traditional assets such as shares. The broad offer now reaches many newcomers and encourages them to trade altcoins with high profit prospects. We do not need to explain further here how this venture turns out in most cases. The fact is that trading is a very difficult undertaking even for professionals with sound analyses, FOMO-free strategies and years of experience. Moreover, trading only serves the trader himself and has no social benefit.

Somewhat less interesting for day traders but all the more interesting for investors with a long-term perspective: Bitcoin. It is the pioneer among the coins and scores with superior security, is the most widespread and has the highest market capitalisation among the cryptocurrencies. But at Coinfinity, we believe that Bitcoin is much more than just the best crypto asset.

In a broader sense, Bitcoin is our best chance for a deflationary and decentralised monetary system managed by the Bitcoin community itself. With the increasing acceptance of Bitcoin as a means of payment (PayPal US, El Salvador, etc.), we are getting closer to this goal.

Bitcoin had recently enabled some women to flee the Taliban from Afghanistan. For many people in third countries, Bitcoin is already the best substitute for bank accounts that they are not allowed to own or cannot afford.

Bitcoin is not just about prices, it is about value and that is worth investing in.