– Ten years ago, most people would never have heard about cryptocurrencies, but now with Bitcoin approaching $60,000 and near all-time highs again, they are the “flavour of the month” with many investing life savings or substantial sums into these highly speculative asset classes
– Particularly popular with younger investors, crypto speculation is often as much a hobby as it is an investment! Here, Daniel Fisher of Physical Gold Limited discusses the concept of HODL or Hodling (yes, we did spell it right!) and how investing in gold and cryptocurrencies together could be a recipe for success in the medium-long term
Daniel Fisher has nearly 25 years of experience in the financial services industry. In 2008, Daniel established Physical Gold Limited, a website devoted to the sale of gold and silver focusing on bars and coins. Daniel a qualified CeFA has real world insight and a deep understanding of regulatory frameworks and has significant experience in devising investment strategies across numerous asset classes.
As well as having a day-to-day involvement in the physical gold and silver markets, Fisher also invests in cryptocurrency markets. As an expert in both fields, Daniel is well placed to advise on strategies for physical metals and cryptocurrencies as part of a balanced investment portfolio.
One of the strategies Fisher was keen to discuss is “hodling”, clarifying that, “HODL is a term used to mean “Hold On for Dear Life”. It’s a play on words, as hodling as a strategy encourages crypto investors to buy and hold (or HODL) cryptocurrency for the medium-long term as opposed to continuous buying and selling on rises and falls. Hodling is a term used frequently in crypto forums and social media posts.“
Long-term investment is quite natural in precious metals markets, where investors have grown used to investing for the long-term. Some infact invest in gold and silver as part of a will and give precious metal as an inheritance.
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As precious metal assets have consistently risen in price in recent decades, it gives investors a sense that what happened previously is likely to happen again. Metals like gold and silver have very real and longstanding intrinsic value, providing a feeling of financial safety and security.
Fisher remarks, “In recent years, gold and silver markets have also at times been volatile, due to factors such as the COVID-19 pandemic, BREXIT, China/US trade wars and general global economic uncertainty. So, the “hold on for dear life” mantra is increasingly being applied to precious metal. Nevertheless, it’s fair to say that these markets (whilst having the potential for volatility) are much less volatile than cryptocurrencies. The HODL investment philosophy can be adopted for both precious metals and crypto though, with investors taking a view irrespective of what happens – I am hodling for the long-term!
“With crypto investments, the best returns are made by those hodling for the long term, whilst also trying to “buy the dips” or “dollar cost average” as an investment strategy. In contrast, crypto traders (often referred to as “day traders”) are much more active in transactions and seek returns by buying at low prices and selling at high prices. Traders don’t typically HODL for the longer term but may will invest at the same time as trading.”
It’s true to say that both gold and crypto investments can be volatile, so it’s tempting for investors to trade in and out or sell when prices fall, through fear. This is irrelevant with hodling as the investor is committed to “holding on for dear life”, irrespective of market rises and falls.
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With cryptocurrencies such as Bitcoin, Ethereum and Cardano having demonstrable long-term sustained price rises, there is a valid argument to support (from historic prices) that crypto can be safely held for the long-term. Of course, past trading is no guarantee of future similar trading, but this does act as a form of assurance. Crypto investors also seek assurance from predictive models, with the most popular being Plan B’s Stock-to-Flow Bitcoin Price Model, which predicts $100,000 by the end of 2021.
Before deciding on whether to buy crypto and HODL, Fisher comments, “You need to ask yourself whether you can answer “yes” to both of the following questions: 1. Are the crypto investments I decide to make completely disposable? – If you need to “dip into” those funds for other purposes, then hodling is the wrong strategy. You won’t be able to hold as you might need the funds for day to day living. In this circumstance consider instead investments such as gold and silver, which are fully liquid or maybe even keep some funds in a high interest savings bank account. 2. Am I fully aware of the associated risks and prepared to lose my entire investment (100%) if the cryptocurrency I have selected fails, or the crypto market turns against me? – if you are not aware of the risks, then investing in crypto and hodling is not a wise investment strategy.”
Fisher is often asked about a sensible mix of precious metals and cryptocurrencies as part of a balanced investment portfolio. His advice would be, “Consider investing around 15-20% in precious metals – with 10%+ in gold and 5%+ in silver. Crypto is much more speculative, so an investment of around 5% seems appropriate and is often recommended by market analysts”.
This blend of 15-20% in precious metals is a great safe haven investment and helps protect against economic downturns. Whereas a 5% crypto investment ensures the portfolio benefits if there is a spectacular rise in this highly speculative type of investment.
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