First things first. What does HODL mean?! HODL is a Bitcoin acronym that stands for: Hold On for Dear Life. At its core, HODLing means you are a long term investor of an asset and are not influenced by short term price volatility.
Where did HODL come from?
HODL originated on a Bitcoin message board in 2013 during a 40% market downturn. All the traders said they were cutting their losses and selling off at what turned out to be the bottom, but one now famous Bitcoiner, GameKyuubi, refused and wrote, “I AM HODLING”. All readers were aware of the typo but tried to force an acronym to memorialize the event. Thus, HODL was born.
What was the market bottom Bitcoin price that all the traders sold at, you ask?
This now famous Bitcoiner said they wanted to contribute to the liquidity in the market and minimize any further draw down because they had such strong conviction in the network. Their willingness to “sacrifice” potential capital preservation for the good of the movement made them famous (and made them a silly amount of money over the long term). The traders who sold either missed out on the investment of the decade (maybe century) or had to buy back in at a higher price.
This is the lesson almost all investors have learned – usually the hard way – over the last decade. Historically, HODLing Bitcoin is one of the easiest ways to grow wealth. There are no shortcuts.
Bitcoin Price Discovery
Bitcoin’s price increase has been meteoric, and simply HODLing this asset has proven to be the best trade of the decade. Historical price increases are just that – historical. It doesn’t mean the future will behave the same way as the past, but the history is…epic. The industry is not slowing down and many believe we’re still very early.
Software eats hardware (examples: Amazon vs retail stores, NetFlix vs Blockbuster, iTunes vs music store, etc…) and open source software that allows entrepreneurs to build on top beats proprietary software. Bitcoin is digital and open source software and is targeting central banks, governments, banks, FedWire, remittance services, gold, and MANY other legacy finance services and instruments.
The crypto industry is just beginning its journey and feeling out what physical financial hardware needs to be replaced by decentralized, open source software. The volatility is high because we are still early in this process and the price, use cases, and potential are all very much in discovery mode.
Number Go Up (NGU) Technology
Why does the Bitcoin price continue to increase? Look for a longer form blog post in the future about this topic because it’s a DOOZY! Demand continues to rise as Bitcoin proves to be reliable, useful, empowering, programmable, and in a constant state of self discovery. Demand plays a huge role in impacting price. But what about supply?
We live in an environment where our dollars constantly lose purchasing power due to the printing of more money. Bitcoin also “prints” new Bitcoin as a reward for miners securing the network, but the rewards shrink every 4 years during an event called “The Halving” or “The Halvening”. The Bitcoin inflation schedule is fixed and transparent – every 4 years the halving reward is cut in half.
Assuming demand is constant (which in Bitcoin’s case is constantly increasing) and the supply of available Bitcoin goes down the price will go up – by a lot. My personal favorite term for this is quantitative hardening. Bitcoin is considered an incredibly hard asset (scarce and hard to produce) and every 4 years it becomes significantly harder – making it more valuable.
Stock to Flow (S2F)
Stock to Flow, popular among Gold investors, forecasts Bitcoin’s price based on in-flow supply changes. Some view this as a re-setting of the price floor every 4 years. It is controversial, but also shockingly accurate so far. It is definitely something to keep an eye on.
As stated earlier, this has not been proven and shouldn’t be the only reason an investor gets into Bitcoin or cryptocurrency, but it has been surprisingly accurate over the last decade. Watch the below interview with the pseudonymous Stock-to-Flow proponent Plan B for more information about why he selected this model to explain how supply changes impact price:
Mining Hardware Improvements and Moore’s Law
As Bitcoin mining hardware becomes more efficient (referencing Moore’s Law) miner’s don’t have to to sell as much of their Bitcoin to be profitable, and instead become HODLers. This means less Bitcoin will be for sale from miners (who are some of the largest sellers of Bitcoin). More on this in a future post!
The above factors, and more, mean the supply of Bitcoin force upward price movement even if demand remains constant – which is significantly increasing. Bitcoin is Number Go Up (NGU) technology!
Is HODLing easy? It sounds easy!
In a word, NO.
HODLers have iron stomachs forged during periods of volatility. You will be tempted to sell during market crashes AND booms, and honestly, holding onto your Bitcoin is much harder when the price is soaring. If you have long term conviction (and if you don’t check out the links at the bottom of this post!) you are not willing to lose your Bitcoin based on short term news, technical analysis, or price changes. It isn’t easy, but over the long term it has been worth it.
Dollar Cost Averaging (DCA)
Dollar Cost Averaging (DCA) is regular, scheduled buying of an asset regardless of price. This means you will place recurring orders (ex. every Saturday night) which will cover varying prices over price runs, drops, and stagnation. This protects you from short term price volatility. Set it and forget it! If you have high conviction and plan on being a long term HODLer this is the buying strategy we recommend.
Binance.US is our recommended exchange for investors who want to dollar cost average. Their ability to set recurring Bitcoin / crypto buys is simple and their storage safe – another key feature for HODLers.
How to Store Bitcoin / Cryptocurrency Safely
Hardware wallets are the safest way to hold your Bitcoin / crypto, but they do not come without risks. Holding your own private keys is incredibly empowering, but puts the onus of learning, planning, storing, and backing up everything on you. We encourage you to pursue this goal, but make sure you research, ask questions, and test your whole process before moving significant amounts of crypto onto a hardware wallet.
If you don’t feel comfortable holding your own keys make sure you buy and hold from a reputable exchange. Check out our list, here.
Get off zero and HODL. Don’t be this guy.
Are you a beginner who needs a shot of conviction?! Start with the posts below: