Should You HODL Bitcoin?

HODL began as a typo for the word "hold." It appeared on a bitcointalk.com forum, and the crypto community found it so amusing that they began using "HODL" as a term to denote holding (rather than selling) one's cryptocurrency. 

Bitcoin's Highs and Lows

Bitcoin brought seasonal cheer to investors when its price gathered pace and broke records in December 2017. The heady run-up in its price had bitcoin enthusiasts making wild forecasts about its price down the line. Their prognoses were gloomier three months later in 2018. The cryptocurrency’s price was down by more than two-thirds from its December high and roughly 47% off from the start of the year.

Bitcoin has since been known for its wild fluctuations in price, volatility that investors have come to expect. But that doesn't make it any less anxiety-inducing when money is involved. Bitcoin’s price movements have forced investors to reconsider their opinions about the cryptocurrency. Here’s a brief recap of the bull and bear case for bitcoin. Should you HODL?

The Bear Case for Bitcoin 

A steady stream of hacks and scandals from within the cryptocurrency ecosystem has ensured that the currency's reputation as a venue for criminal activities persists. The most prominent example occurred in 2019 when hackers made off with $500 million worth of cryptocurrency from the Japanese exchange Coincheck. The bitcoin price slid along with that of other cryptocurrencies.

Regulators and economists around the world have added to the pressure by criticizing bitcoin in public forums. Their stance has made governments wary of bringing bitcoin under legal cover.

Online platforms enthusiastically embraced bitcoin after its launch, but they've joined bitcoin bears and imposed restrictions on or dropped cryptocurrencies from their ecosystems altogether. Google, Facebook Inc., X Corp (formerly Twitter), and Reddit are among some of the big names that have curbed cryptocurrency ads and have all but blocked bitcoin payments.  

Bitcoin’s high transaction fees were considered a deterrent to mass adoption, but they fell. The decline was accompanied by a corresponding slide in volumes. Technological solutions, such as the adoption of the Lightning Network and Segregated Witness, were supposed to be a remedy for bitcoin’s scaling problems because they speed up the network, but they're responsible for processing only a small number of transactions.

The Bull Case for Bitcoin 

The primary bull case for bitcoin is based on the virtues of patience. It points to the cryptocurrency’s previous price action as proof that bitcoin’s price will rise again. 

Among the most prominent proponents of this theory is noted analyst Thomas Lee, head of research at Fundstrat Global Advisors. Lee advises holding bitcoin. “Market timing is generally discouraged in traditional equity investing. If an investor missed out on the 10 best days (for S&P 500) each year, the annualized return drops to 5.4% (ex-10 best), from 9.2%. In other words, the case for buy and hold equities is the opportunity cost of missing out on the 10 best days,” Lee wrote.

Lee applied the same logic and wrote that annual returns for bitcoin drop to 25% annually if investors remove the 10 highest-performing days each year from the equation. In fact, bitcoin’s returns are negative if one excludes the top 10-day gains, according to Fundstrat data. Lee has a mid-year price target of $20,000 and an end-of-year target of $25,000 for bitcoin. 

Actions taken by governments and regulatory agencies also indicate a thawing of positions related to cryptocurrency. Bitcoin ETFs introduce further liquidity into bitcoin’s ecosystem. Technical developments within bitcoin’s network also point to a brighter future. The list of nodes accepting Lightning Network is increasing. Large platforms, such as Coinbase, have begun implementing SegWit technology.

Frequently Asked Questions

The Bottom Line 

The bulls are of the opinion that bitcoin’s price follows a predictable pattern based on previous trends and that it will rise again. But the bears point to increasingly negative sentiment and scandals associated with the original cryptocurrency to make their case for selling bitcoin. 

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Each individual's situation is unique so a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author does not own cryptocurrency.