With time the number of users and investors in the crypto sector is going up, lack of any govt regulation notwithstanding. You would be mistaken to assume it is only the millennials and tech-savvy people who are getting drawn towards this fast-growing sector. On the contrary, people from various segments of society are opting for cryptocurrency for short and long-term gains. There are plenty of crypto coins to choose from and the number of crypto exchanges is also growing. However, you also need to learn about the strategies to make your crypto sector investments grow.
The basics of holding/Hodling and staking
The crypto sector investors usually choose one of the two popular strategies to gain namely Hodling and staking. Hodl is a crypto sector term that refers to holding onto a digital asset for the long term with the hope that its value will rise. On the contrary, staking refers to participating in the generation of new coins in return for rewards. Newbie crypto investors often find it hard to choose between the 2 methods.
Hodling- is it good for you?
The term hodling came into being in 2013 at the time when the value of Bitcoin surged to $1000 from $15 within a year. Since then, this term is used to denote long-term crypto investment and it has become like an investment philosophy. Those who hold any digital asset do not think much about immediate price fluctuations. They want to hold the assets until the price reaches a staggeringly high level.
The benefits of hodling
- The first and foremost advantage of hodling a crypto asset is you can be assured of getting very high returns. However, you have to wait for a long time for that.
- When you opt for hodling, you need not think much about the temporary price fluctuations affecting the price of our asset. The crypto sector is pretty volatile and it is hard to predict when and how price of a coin will go up or down. The long term hodlers do not stress thinking about temporary price dips.
- Those who opt for hodling usually choose cold and offline wallets which are more secure and users get absolute control over the amount.
The drawbacks of hodling
- It is not suited for crypto investors who want to make profits in the short term. Every investor cannot afford to wait for a long time for the coin price to surge upwards. Besides, owing to unpredictable nature of the sector, it is hard to assume when the price of specific crypto coin will reach a high point.
- When you hodl your coins, the amount of coins do not grow over time. You have to rely solely on the prospect of coin value surging over time.
Staking- does it work?
Staking is another option to make passive income by investing your funds in the crypto sector. However, its availability depends on certain factors. You can stake the crypto assets on projects made using the much-touted Proof-of-Stake Blockchain protocol. These projects are usually included in DeFi network, based on the Ethereum Blockchain.
When you stake your crypto assets, these serve as collateral for the specific network. When you stake your funds, you get voting right but the condition is you have to purchase a specific amount of crypto coins. In other words, staking denotes the method in which you lock your crypto coins to get rewarded in turn. The concept is similar to fixed deposit schemes offered by the banks. The rewards come from a part of tokens that are newly minted. Obviously, for the chosen locking the period, you cannot use your crypto coins.
Why opt for staking?
You can stake your crypto coins when you want to earn income without doing anything actively. You do not even have to keep watching the market developments. The coins stay locked for a fixed duration in return for which you get income. This is ideal when you want to make income from the crypt sector in short term.
When you stake your coins, you get passive income in terms of freshly minted coins and so your coin amount keeps growing with time.
The drawbacks of staking
While the veteran crypto users and investors with insight into the mechanism of the sector prefer staking as the investment method, there are some loopholes.
- The number of fake and risky cryptos, resembling Ponzi schemes has shot up in recent times. Several users have lost their money after getting carried away by the lofty marketing pitches and investing their money.
- Staking relies on the Ethereum Blockchain and so Ether price movements leave an impact on it. The truth is Ether is known for its steep volatility index.
- Staking makes you put the funds in hot wallets which are deemed less secure than hardware wallets. It may not be the same across all projects, but a security risk remains.
So, which method is ideal for you?
It is hard to say in one sentence whether hodling or staking will work better for you. It depends on several factors including your investment portfolio, expectation, and long-term goals. Eventually, both methods offer the investors economic return over time, when certain conditions are fulfilled.
You have to think of the digital asset and analyze its inherent traits and benefits. If you invest in an altcoin that is not linked to either Bitcoin or Ethereum, check its long-term goals. If you are opting for holding, choose a crypto project with clearly defined long-term goals.