There two types of people: crypto traders and crypto HODLers. What’s the difference and what are the advantages of each?
HODL means to hold onto your crypto for a long time. The duration is up to the individual, but most HODLers keep their crypto for at least a year before selling. Some people hold for much longer and will only sell their crypto for the right price (or never!).
Why do people HODL? With trading, there’s potential to make money right away and consistently. Still, without selling, you can’t make money, so why bother HODLing? The idea is that in a year, two years, ten years, or however long it takes, the price of somebody’s preferred coin(s) will increase exponentially. The higher valuation will then reward the HODLer with a large profit if they decide to sell.
All it takes is the right price for a HODLer to sell eventually, but the time it will take for the coin’s worth to get that high is unknown. HODLers are holding out for the time if their coin reaches a valuation that they are happy to sell. That’s when HODLers make money. For example, buying bitcoin in 2010 and then holding it until 2017, when the price reached its all-time high of $20,000, would have netted HOLDers huge gains if they decided to sell at that point.
Advantages of HODLING
- Hands-off approach
- Reduced taxes & paperwork due to long term capital gains
- Allows for cost averaging
Disadvantages of HODLING
- Not as exciting as day-trading
- No short-term gains or income
Crypto traders typically trade daily or every few days or weeks when there are swings in valuation. Cryptocurrency is volatile, meaning there are constant fluctuations in price. If done correctly, this can work to a trader’s advantage by offering the potential for short term gains and immediate profit.
Of course, trading is risky, and you could end up missing out for more profit if you sell too soon. It can also take a toll on mental health because the crypto markets don’t close. This means that there’s the potential for day trading to consume someone and stay up all night while they trade. Frequent trading is a thrill, which HODLers don’t experience. With crypto trading, there’s instant gratification, but there can also be instant heartache.
Advantages of Crypto Trading
- Potential for immediate profit
- It’s more exciting than HODLing
- Potential for an income stream
Disadvantages of Crypto Trading
- Higher risk
- Higher taxes with short term capital gains
- More tax paperwork
- Potential for sleep deprivation
Can I Do Both?
Some people split their holdings and do both trading and HODLing. They keep some of it for the long term, and the rest they trade with either daily or when there are swings. This strategy has the potential for maximum gains. Perhaps there is a coin you think will grow in value over time but does not fluctuate much day-to-day. That one would be a good one for HODL. Some coins fluctuate in price considerably each day or week, so these would be better suited to trading.
Of course, with any crypto trading, whether it’s short term or long term, it’s essential to do your research and set personal goals. If you HODL, you’ll want to research coins thoroughly so that you are comfortable holding one (or more) for the long term. You wouldn’t want to hold onto a coin that dumps and becomes worthless, so pick coins that you think will gain in value in the long term.
With trading, you’ll want to learn how to do it properly as it’s no easy task and comes with significant risk.
With both HODLing and trading, it’s essential to understand and be comfortable with the fact that you could lose everything, no matter which strategy you choose.
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