As an investment, cryptocurrency has been a little up and down to say the least. For the early pioneers, remarkable gains occurred . However it’s a slow wait for the rest of us.
The term ‘HODL’, comes from the traditional stock market. A misspelt email in which someone stated they were going to ‘Hold’ on and wait became a meme. A lot of crypto investors are ‘HODLERS’
The question is, does it make sense to HODL?
To answer this, it’s important to understand how traditional (fiat) currencies work. Governments control all aspects of their own money. This includes inflation through printing more money. If a government wanted to increase inflation by 50% it just introduced twice the amount of cash that year.
If someone was to HODL traditional currency, it would devalue as treasury’s prints money. It is a secret tax that most people don’t notice, as they don’t pay directly. Instead the currency in you pocket buys less.
With Cryptocurrency, there is a fixed supply of any coin. Sometimes large amounts are kept off the market by the original team, but it is fixed.
So what happens when traditional fiat currencies inflate and crypto’s don’t?
Each and every one of them devalues themselves compared to a cryptocurrency. It is very similar to gold in this respect. Each year, your crypto currency should be worth more.
So, HODLING does make sense?. But there is a catch.
If you back the wrong project your coin could drop well below any inflationary gains.
This relatively young market is littered with stagnant or dead projects that once seemed so promising.
However, if a cryptocurrency is around for long enough, and is adopted, gains are inevitable.
So inflation is the secret weapon of long lasting established products with big communities. It’s the icing on the cake of a good investment, not the filling.
This is where individual preference for risk/ reward come into play. I would argue that ‘bitcoin’ will still be relevant in 20years, so HODLING makes sense.
This is not financial advise, but just my opinion. But I will continue to HODL ON.
I’d be interested in other opinions,
Nick
