Benefits and drawbacks of crypto hodling
Crypto hodling is a long-term strategy that could provide a safer investment option, especially for inexperienced asset owners. “Sit back, relax and go back to your investment in five years’ time” is often a mantra in financial markets, and the crypto industry is no exception as this is also the hodlers’ motto.
Benefits of hodling
Hodling removes the need to check price actions continuously;
By hodling, investors avoid the stress and risk of dealing with short-term cryptocurrency volatility and increase the chance of enjoying long-term value appreciation;
Emotions like FOMO and FUD are minimized;
Hodling can result in massive profits, typically within the range of only a few years in crypto. For instance, if you bought Bitcoin in the spring of 2020 at ∼$5500 and sold it in the autumn of 2021 at ∼$65000, the return would have approached 1100%. It’s very unlikely to get such a high return on an investment within only a few months with any other asset; and
Hodling allows investors to defer their tax liability. At the same time, they can keep more money invested and increase the chance to grow their capital much faster if the value of the cryptocurrency keeps rising.
Drawbacks of hodling
Hodling through bear markets can be tough, and investors should resist the temptation to sell, especially at a loss;
Investors must ensure they have sufficient capital at their disposal in case of forced sales or unexpected liquidity needs;
Hodling can still be risky. Even though a few cryptocurrencies like Bitcoin and Ethereum are established investment assets, their history is still too short to ensure investors of their long-term value. Cryptocurrency regulation and future mass adoption are still too uncertain to regard digital assets as sound and reliable investments;
Security might be a higher risk for long-term hodling. Investors should learn how to secure their assets with the self-custody and privacy tools at their disposal to avoid common cyber theft and hacks.
There is a higher risk of losing access to private keys, which are essential to assets’ protection.
Having exposed the pros and cons of day trading and hodling, investors might also consider that both options could apply to their investment strategy. Indeed, many are both day traders and hodlers to grow their portfolios.
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