Holding cryptocurrency: effective strategies for making money

Holding example

When bitcoin was introduced in 2009, the coin was worth nothing. Further, the token went through such stages:

• A year after the start of trading, the digital currency was valued at fractions of a cent.
• In 2011, BTC reached the mark of 1 dollar for the first time. Bitcoin crossed 1k in November 2013, when it began to attract attention to itself.
• In 2017, during the second major price spike in its history, it approached $20k. But fell to $3.3k in 2018.
• In December 2020, the coin broke the $20k mark.
• Made a leap to a record high of $64.9k reached on April 14, 2021.

It is difficult to predict where the bitcoin price is moving. But the long-term trend is in favor of HODL.

Hodl

The term has spread to other cryptocurrencies. Investors use it for the process of holding assets. They are bought and not sold for a long time.

Strategies

Holding cryptocurrency is similar to the “take and hold” principle. It is used by participants in the stock market.

Investors who don’t hold crypto are like day traders in stocks or forex who profit from volatility. They buy cheap and sell high or look for a position to short.

The HODL strategy involves long-term investment in digital assets. Investors believe that the value of the coins they buy will rise despite any short-term volatility.

By employing the HODL strategy, they understand that the market fluctuates up and down and hold their assets during downturns. This is especially important for inexperienced market participants who are prone to panic.

It is unlikely that a downturn will cause all cryptocurrency to drop to zero and disappear. Often the market will recover. Although it may take time to return to previous highs.

Common Cryptocurrency Storage

Earning money from digital assets in a passive way is easy. To do this, you can buy coins from exchanges or exchangers. Then keep them for a long time on your crypto wallets to increase the rate. This strategy is suitable for top assets with a developed community and a good development team.

Lending

One of the ways when the owner of tokens contacts the borrower through the lender platform. The essence of earning is as follows. The user places a deposit for a certain period of time and receives a profit. The percentage is specified in annual equivalent. Rates for September 2021 start at 6.2% and rise to 12.7%, depending on the cryptocurrency asset. Their size can also change due to the market situation.

The term of placement is from a week. The platform withholds a commission from the one who takes funds on credit. An example of profit calculation is presented in the table.

For example, ZebPay Exchange borrows coins at interest for a period of 7 to 90 days. The rate of return depends on the number of days selected. You can get up to 3% per annum for bitcoins, up to 7% for Ethereum and Dai, and up to 12% for Tether. The platform presents a 6-coin program.

This lending feature is aimed at long-term investors. It allows you to earn passive income, in addition to profits from the growth of cryptocurrency prices.

The Vauld exchange lends coins from its clients for a period of 30 to 90 days. You can get up to 6.7% per annum for bitcoins and Ethereum, up to 12.68% for DAI and Tether. The platform works with 30 digital assets and pays interest to customers.

However, to receive % by lending, it is mandatory to transfer cryptocurrency to the wallet of the exchange. Upon maturity, the income received will be credited to the trading account along with the principal amount.

For example, a user lends bitcoin for 3 months on the ZebPay exchange. The interest will be credited along with the principal amount after the end of the loan period.

Staking

This is locking tokens in a DeFi smart contract (decentralized finance protocols) to get more coins in return. The process is similar to a fixed deposit in a bank that pays interest on the money deposited there.

By blockchaining a crypto asset in the DeFi system, the user becomes part of the node for the project’s network. Each blockchain protocol with proof-of-ownership (Proof-of-Stake algorithm) relies on them to securely verify transactions. Users who put tokens into the staking to protect the network are rewarded.

For example, an Ethereum owner puts a coin into an Ethereum 2.0 smart contract. He will receive additional ETH for his role in securing the network by following basic consensus rules. For Ethereum 2.0, the minimum requirement for staking is 32 ETH. On some platforms, a smaller number of tokens can be staked.

In addition to direct remuneration for placing the tokens, holders receive a percentage of revenue from the products and services offered by the platform.

Alternatives to hodling

Trading and holding coins for long periods of time are among the main ways to make money from cryptocurrencies. However, part of the community is looking for more acceptance of digital assets. Therefore, 2 other strategies are created and utilized:

• SpendingPhilosophy (SPEDN) – digital coins are spent to buy goods and services. Promotes their adoption in the real world.
• Infrastructure Development (BUIDL). Refers to the creation of companies, platforms, applications and tools to utilize such assets.

Advantages and disadvantages of holding cryptocurrencies

The pros for digital koin holders are as follows.

• High returns. Investors hold their assets for long periods of time to capitalize on the increase in value.
• Lack of trading skills. No need to understand trading and follow the market.
• Emergence of hardforks. When the blockchain is split into 2 independent networks, holders of one coin usually get new coins for free. An example is Bitcoin Cash, which is based on the Bitcoin source code.
• Security. Hodling can provide greater safety of funds. Since investors are not exposed to short-term volatility and avoid buying high and selling low.

Market participants should also consider the risks of holding cryptocurrency.

• Sufficient capital to avoid forced sales or provide liquidity.
• Impairment of the asset. Not only can a coin rise in value, but it can also lose value.
• Uncertainty. Digital assets face unknowns, lack of developed legislation. Some coins may disappear altogether.
• Politics. Governments of countries have different attitudes towards the use of cryptocurrencies. This can affect transactions and their value.

Tips and advice for investors

It is important for hodlers to create and maintain a balanced portfolio. This means that if an investor only owns bitcoins, their collection is disharmonious. The selection of cryptoassets should be careful. Not all coins are suitable for hodling. Many may disappear after a few years.

While hodling is a good strategy, it is not completely passive. The investor is supposed to pay attention to his portfolio. Changes it over time and also performs rebalancing.

Popular memes

After the term “hodl” was first mentioned, a whole trend of memes emerged. These pictures have an entertaining nature. They are usually used in cryptocurrency channels in the messenger Telegram.

Frequently asked question