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The term âhodlâ is ironically used as a way to refer to holding onto a cryptocurrency no matter what happens to its price. For those not in the know, the term âhodlâ is an intentional misspelling of the word âholdâ and the term originated from THIS post. Perhaps a better description of the term âHODLâ is âHold On for Dear Lifeâ
The term âhodlâ is used in the following two instances:
- The price of the cryptocurrency theyâre referring to has risen significantly
- The price of the cryptocurrency theyâre referring to has sunk significantly
In the first instance, âhodlâ is used as a way to say something like âhold on to your investment, as it could gain even more value in the future and youâll lose out on even more profitsâ. However, âhodlâ is most often used in the second instance. Itâs often used when a cryptocurrency price has fallen significantly and investors have to convince themselves to continue holding onto the coin because they know that their fundamental investment thesis is correct and ultimately they will be redeemed with being correct (and hopefully massive returns). However, itâs important to distinguish between this and when youâre experiencing the sunk cost fallacy.
Sunk Cost Fallacy
To explain the sunk cost fallacy, Iâd like you to imagine that youâre hungry and decide to buy a reservation for an upscale restaurant that you heard was very good. You havenât done much research into it, but you trust othersâ opinions on it, especially because theyâre rich and should know âhigh-classâ.
However, a day before you decide to go online and actually research the restaurant. You read reviews and realize that this isnât actually a place you want to go to at all: the patrons are stuck up, the food is too small andâââworst of allâââthe waiters ask for your order in French. You decide you want nothing to do with the place but, because youâve already bought the reservation, you feel obligated to go anyway. That is the sunk cost fallacy.
This is why hodling isnât always a good thing. Youâre looking for something to invest in. You decide to invest in some obscure cryptocurrency youâve never heard of, but maybe you repeatedly heard people online say great things about it, or maybe you saw its price pump recently and wanted to get in on the action. Of course, you donât exactly understand why somebody would wan to invest in it, you just know that if you donât invest in it youâre going miss out.
Eventually, you see the price sinking. So you decide to do an in-depth review of the cryptocurrency from examining various sources. Maybe you realize the cryptocurrency isnât as star-spangled awesome as you first thought it was. Itâs got some glaring flaws in it. But you convince yourself that you need to âhodlâ it because⊠becauseâŠ. Because what? Maybe you canât come up with a good answer that to that question. But you tell yourself that youâve already invested in it, so you might as well continue to âhodlâ in the off-chance that your investment ever blasts off to the moon due to some whale putting money into it. This is where hodling fails. Donât do this.
Conclusion
Iâm not saying holding your investments when it goes down in price is a bad thing, but you have to know WHY youâre holding your investment. You should have a clear investment thesis when investing. Not having a clear investment thesis when investing in cryptocurrency is a bit like sailing in murky water without a map and a spyglass to guide you: eventually youâre going to get lost or, worse, hurt. Holding an investment for no other reason than the fact that you hope you make your money back is when hodling fails.
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When Hodling Fails was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.