The crypto hodling strategy is quite popular. I’ve been doing it myself for many years. For those unaware — it is a method of buying Bitcoin, or any other cryptocurrency, and holding it as long as possible, in favor of long-term returns. While you are hodling, the cryptocurrency held is generally locked away in cold storage, making it unavailable for any purpose.
Even though there have been proven returns through this strategy, such as during the 2016 and 2017 bull market, there is no consistency of good returns over the long term. I’m here to tell you the strategy is obsolete, and introduce you to strategies I’ve been benefiting from for a long time now.
What are the pitfalls of Hodling?
1. Generally, new investors get into crypto when prices are high, as the excitement of the market draws them in. This might be difficult to understand, but because one buys crypto when they are at the top, then they have a long hard Hodl road ahead of them. As there might be multiple lows, the investor has many chances of selling the crypto for lower, compared to when it was bought, leading towards loss.
2. A Hodler, if not experienced, might not know when to Hodl and when to not. Even when it is time to make profits, the investor might “just Hodl” the assets for a little longer, and might end up reaching the lower margin again. Hodling indeed results in high returns, but without the knowledge of when to sell, you might miss out on the right time, and end up losing money. You can’t make profits if you don’t take the chance.
This makes us wonder if other crypto strategies yield better returns while still not requiring as much effort as active trading.
Crypto Staking is a process of acquiring cryptocurrencies and keeping them locked in a wallet. This is done to receive profits and rewards. It is quite similar to Hodling but the difference is, at Stake, the balances are blocked and it can’t be used freely, and in return, you receive a certain annual interest. Certain systems use Staking for mining operations, such as PoS, and PoA.
Now let us look at the advantages of Staking over Hodling.
- When you are Hodling, your price is going to go up over time, but there is no increase in the number of coins. Whereas, while Staking, seeks to add more coins which in the end adds more value to the user. This extra sum of the coin is generally awarded to the user by keeping the coins locked within the system.
- The retention impact of Staking is way more than that of Hodl. How does this happen? When the Staking is higher, the rewarded value will be higher too, further resulting in a greater subsequent impact on the dynamism of the cryptocurrency.
- Hodling yields good results only when you are investing long-term. For people looking for great results through short-term investments, Staking is probably the best option.
- By Hodling, the number of cryptocurrencies you own is not going to grow. This means that you will only get a good yield if the cryptocurrency grows in price. On the contrary, when Staking, even if the price grows lower than the coin, having more coins can result in a higher yield.
- Hodl is a simple strategy to apply compared to Staking. Staking today has so many options that we could well see it as an advantage, for example, Staking a liquidity provider may be something that many consider positive.
People often have the misconception that Hodling assets, and keeping them safe until the price of their desired currency rises are the best way to have good returns over a long tenure. The question is, how is your digital currency going to grow then? This is where crypto lending comes into the picture. Not only will it enable savers to receive interest on their stash of cryptocurrency, but it will also enable borrowers to unlock the value of their cryptocurrency.
Crypto Lending is similar to traditional lending in finance, which involves lending digital assets through crypto banks and exchanges. Digital assets can be used as collateral on fiat or stablecoins, and the lender provides assets required for the loan, in return for interest. Now let us see how Lending is better than Hodling.
Hodling takes a very long time to give out profitable returns. Due to the involvement of loans and collateral in lending, people often end up getting more money. As the borrowers repay their loans with interest, this actually leads to value creation that is independent of the market. Unlike in hodling, lenders do not have to wait for long periods to obtain profitable returns.
If people are opting for Hodling only for its simplicity and ease of usage, for a fact, Lending isn’t complex either. All it requires is for borrowers to pledge their digital assets as collateral. Along with loans getting faster approvals, lenders can also earn and enjoy interest passively.
Safety of Funds
The safety of funds is indeed a major concern for all crypto traders and investors. As Hodling involves locking away your assets for a long time, users may lose access to their wallets if they lose their private key or do not remember where they have stored the assets. But this isn’t the case when it comes to Lending. As long as the platform you are using is trusted and reliable, the surety and security of your assets are guaranteed.
By now, it should be quite evident that crypto hodling is not the only strategy that could be used to get profitable returns. Crypto Staking and Lending provide equally great opportunities on their own, in yielding high value, in the comparatively lesser time frame.