There’s no question the HODL strategy has paid off well for GameKyuubi and other Bitcoin investors that have held onto their crypto investments.

Since the original HODL forum was posted in December 2013, Bitcoin prices are up about 2500%. Even investors who bought on the first day of 2018 and employed a HODL strategy are still up more than 17% on their investment.

But Bitcoin’s gains don’t come without years of “HODLing” through stomach-turning losses.

Bitcoin’s extreme volatility has produced a handful of horrendous annual returns throughout the years. For example, Bitcoin shed 50% of its value in less than 48 hours of the Covid-19 pandemic-induced sell-off in March 2020. The original crypto plunged to $US4000 before ending the year around $US29,000.

Today, Bitcoin prices are down 73% in 2022 as rising interest rates have triggered a sell-off in cryptocurrencies and other risk-on assets, and, most recently, the collapse of Binance’s offer to buy rival exchange FTX prompted a sell-off of BTC and alt-coins. But investors who were spooked into selling their BTC in past downturns have often lived to regret those decisions.

Ignoring short-term market fluctuations and focusing on the long-term outlook is not a strategy that is unique to the crypto world. Value investors like billionaire Berkshire Hathaway CEO Warren Buffett also ignore short-term market volatility and focus on the long-term picture.

The “Oracle of Omaha” famously encouraged investors never to own a stock for 10 minutes that they wouldn’t be comfortable holding for 10 years.

However, the difference between long-term value investing and long-term HODLing is the difficulty in accurately valuing cryptocurrencies.

Value investors rely on fundamental metrics like price-to-book (P/B), price-to-earnings (P/E) and price-to-sales (P/S) ratios to estimate the intrinsic value of a stock.

Bitcoin does not generate cash flow, revenue or earnings, and it’s not backed by assets that create intrinsic value, making it difficult to predict its long-term value.

Harry Turner, founder of The Sovereign Investor, says the key to Bitcoin’s long-term investing outlook is its leading market position and its fixed supply.

“HODLing is a good approach to Bitcoin investing if you believe in its long-term prospects and are prepared for some volatility along the way,” Turner says. “The same can’t be said for all other cryptos, however, as most of them will likely go to zero.”

Once-popular altcoins like OneCoin, BitConnect and TerraUSD are just three examples of cryptos that failed, generating a near-complete loss for any investors who employed the HODL strategy.

Several altcoins that soared during the 2021 crypto boom, such as Dogecoin (DOGE), Avalanche (AVAX) and XRP (XRP), are down more than 88% from their all-time highs.

Only time will tell whether they ever recover.

HODL may not be the right approach for every crypto investor and every cryptocurrency. It can be difficult for even professional traders to time short-term trades. And there are psychological biases that negatively impact investors’ decision-making.

Even US billionaire investor Ray Dalio said he was wrong about 66% of the time he personally disagreed with the “buy and sell” decisions of his hedge fund’s automated quantitative investing process.

The investor sentiment cycle is a visual representation of the emotions a typical investor experiences based on the performance of the investor’s portfolio over time.

When a stock or crypto’s price is at its lowest point, investors typically experience fear, anger and panic that can lead them to sell at the worst possible time. Likewise, when a stock or crypto price is at its highest, investors often feel excited and overconfident, prompting them to buy at the worst possible time.

Jason Porter, senior investment manager at Scottish Heritage SG, says the HODL strategy can be particularly useful for crypto investors during market weakness, such as 2022’s crypto winter.

“HODL can be employed, particularly when the market is declining, to assist investors in avoiding the urge to sell in a panic,” Porter says.

He says HODL investing can help investors control the emotions associated with the fear of missing out, commonly known as FOMO, and fear, uncertainty, and doubt, or FUD.

“I believe this is crucial for new investors because they are more likely to act emotionally or impulsively,” Porter says.

The HODL mindset inspired the creation of the HODL token in May 2021. HODL claims it is the highest-paying reward token on the Binance Smart Chain Network (BSC). It isn’t easy for Australians to get hold of HODL, and you may have to use an international exchange, which may cost you extra in conversion fees to USD.

A 10% tax is applied to each HODL transaction, and the tax is automatically liquified and converted to BNB (BNB). That BNB is then transferred to a reward pool and is distributed every seven days to investors who hold HODL tokens in their wallets.

The HODL token may seem like an attractive source of passive income, but the price of a HODL token is down more than 99% from its all-time high. At this point, HODLing HODL tokens haven’t paid off for investors.

HODL culture has been a major help to long-term investors in Bitcoin and other top cryptocurrencies. But critics of HODL culture point out that the mindset only works if the value of cryptocurrencies continues to trend higher over the long term.

Bitcoin has only been around since 2009, giving it a limited long-term track record compared with stocks, bonds, property and other assets. Others have argued that the stubbornness and close-mindedness of HODL culture is “cult-like”, blinding the community to any legitimate criticisms of Bitcoin as an investment or a currency.

Still, if Bitcoin bulls are correct and BTC eventually becomes the world’s universal digital currency and preferred long-term store of value, long-term HODL’ers will benefit.

This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency as an investment class.