Understanding the Strategy of Holding Bitcoins

Holding Bitcoins can be a straightforward strategy, but it requires some understanding of how it works. The value of Bitcoin can fluctuate rapidly, making it a high-risk investment.

The primary goal of holding Bitcoins is to benefit from long-term price appreciation, as indicated in the article section "Long-term Price Appreciation: A Key Driver of Holding Bitcoins". Historically, Bitcoin's value has increased significantly over time, making it an attractive option for investors.

However, this strategy also involves a high level of volatility, which can result in significant losses if the market declines. To mitigate this risk, it's essential to have a solid understanding of the market and be prepared for potential price fluctuations.

A key aspect of holding Bitcoins is understanding the concept of HODLing, which stands for "Hold On for Dear Life", as mentioned in the article section "What is HODLing?". This strategy involves holding onto your Bitcoins for an extended period, regardless of market fluctuations.

Hold bitcoins are a type of digital currency that allows for secure and decentralized transactions.

They're created through a process called mining, which involves solving complex mathematical problems.

Mining is done using powerful computers that use a lot of energy, and it's a way for the network to verify transactions and add them to a public ledger called the blockchain.

The blockchain is a record of all bitcoin transactions ever made, and it's what makes bitcoin a secure and trustworthy form of currency.

Each bitcoin transaction is linked to the one before it, creating a permanent and unalterable record.

HODLing, or holding on for dear life, is a long-term approach to cryptocurrency investing that mirrors GameKyuubi's rationale in the original post that novice traders are likely to botch their attempts to time the market.

This approach is not just about reigning in FOMO and FUD, but also about believing in the long-term prospects of blockchain technology and cryptocurrencies.

Large corporations are becoming more involved in the space, with Google, Meta, and X Corp. participating in cryptocurrency, and some even accepting cryptocurrency payments.

HODLers stay invested because they believe that the price of Bitcoin will rise again, as evidenced by its previous price action.

The idea of HODLing is to buy a cryptocurrency and hold it for a very long time, without taking profits or backing out when prices are going down.

This strategy is essentially the opposite of day trading, where traders buy and sell their crypto all the time.

A true believer would always hold on to their tokens, even if markets crash or become extremely volatile, because they believe in the long-term prospects of blockchain technology, cryptocurrencies, and the communities that have formed around them.

The VanEck Bitcoin Trust, formed in January 2024, uses the ticker "HODL", which is a testament to the growing acceptance of this strategy.

When it comes to storing your Bitcoins, you have two main options: hard wallets and hot wallets. Hard wallets are physical storage devices that store your private keys offline, making them the most secure way to store Bitcoin.

Hard wallets are portable and can be carried around like cash, and if you lose your hard wallet, you can use your backed-up recovery phrase to recover your Bitcoin in another hard wallet. They are also sometimes referred to as "cold wallets" since they don't require a computer or smartphone to be connected to the internet.

Hot wallets, on the other hand, are online software wallets that store your private keys online, providing more utility but less security than hard wallets.

Hard wallets are the most secure way to store Bitcoin, and they're stored offline, making them immune to online hacking attempts. You can think of them as a digital safe that you can carry with you.

Ledger and Trezor are two companies that make these secure storage devices, which are often flash disk drives or hard disk drives. They're portable, just like cash, and you can carry them around without anyone knowing what's inside.

To access your hard wallet, you'll need a four-digit PIN number, and you'll also have a recovery phrase that you should write down on paper or another offline medium. Don't lose that paper, or you'll be in trouble!

Losing your cash is one thing, but losing your hard wallet can be recovered with the help of your backed-up recovery phrase. This means you can use it to restore your Bitcoin in another hard wallet.

Hot wallets are online software wallets that are used to store private keys, providing the most utility but less security than hard wallets.

They come in two types: custodial and non-custodial wallets. Custodial wallets don't let you own your keys, and the provider exposes you to counterparty risk. Non-custodial wallets, on the other hand, give you the responsibility to self-custody your Bitcoin.

A hot wallet that supports the lightning network may be ideal for frequent transactions in Bitcoin, as it enables faster and less expensive transactions.

Many lightning wallets are custodial, which means the provider owns and controls your private keys, exposing your Bitcoin to the same risks as holding it on an exchange.

If you store your Bitcoin securely, your beneficiaries may not be able to access your accumulated Bitcoin in case you die or become incapacitated.

It's crucial to set up an inheritance plan to make it easy for your beneficiaries to benefit from your stored Bitcoin. This involves having a trusted party with whom you can share the locations of your hard wallets, lists of hot wallets, and addresses of your exchange wallets.

Avoid exposing your private keys to a lawyer, friend, or family member when creating a crypto estate plan, as this can lead to unauthorized access to your Bitcoin.

You own Bitcoin, but have you thought about what will happen to it after you're gone? It's crucial to set up an inheritance plan to make it easy for your beneficiaries to access your stored Bitcoin.

You can share the locations of your hard wallets, lists of hot wallets, and addresses of your exchange wallets with a trusted party. This way, your beneficiaries will know where to find your Bitcoin.

Avoid exposing your private keys to a lawyer, friend, or family member when creating a crypto estate plan. In the past, a family member trusted with private keys decided to use Bitcoin for personal gain even before the planned event.

It's essential to make it simple for your beneficiaries to learn that you own Bitcoin, to check and verify the size of your Bitcoin holdings, to learn where the Bitcoin is stored, and to learn how to retrieve such Bitcoin.

The US Government is the largest known owner of Bitcoin, holding over 210,000 bitcoins worth more than $13 billion at the time of writing.

Public companies hold a combined 305,000 bitcoins, with MicroStrategy being the largest holder, having accumulated a significant amount since adopting Bitcoin as its primary treasury reserve asset in 2020.

MicroStrategy's Bitcoin holdings have recently surpassed the US Government's, reaching 214,000 bitcoins in March 2024 with the purchase of an additional 9,000 bitcoins.

The amount of Bitcoin held by governments accounts for 2.7% of the total 21 million supply of bitcoins.

Self-custody is a must-have for any Bitcoin holder. Owning your private keys gives you the power to enjoy the full benefits of Bitcoin without needing permission from anyone.

You can store, send, and receive Bitcoin without any know-your-customer (KYC) requirements, making it possible to transact pseudonymously.

If you keep your Bitcoin on an exchange, you risk being held hostage by the government or the exchange.

Exchanges can freeze your transactions, set limits on the amount you can send, and even use your deposits to cover their own losses.

Sending a large amount of Bitcoin requires caution: start with a small amount to confirm the transaction is successful before sending the rest.

Governments have had a mixed relationship with Bitcoin, with some actively adopting it while others have been critical of its reputation for criminal activities.

Only El Salvador is actively adopting Bitcoin, buying their first 200 Bitcoins and making the cryptocurrency legal tender in 2021.

El Salvador has managed to accumulate over 5,700 bitcoins through mining Bitcoin with Volcano Energy, selling passports, and buying one bitcoin per day.

The US has already sold 195,000 Bitcoins, receiving a total of $366m, which would be worth $12.6bn today.

If Bitcoin were to continue to perform as it has done in the past, by 2030 the US’ stash of 210,000 bitcoins would start to rival their central bank’s holdings of gold, currently worth over $600bn.

Regulators and economists around the world have added to the pressure by criticizing Bitcoin in public forums, making governments wary of bringing it under legal cover.

Regulatory agencies have introduced or are developing laws regarding cryptocurrencies and crypto-assets, fueling the bearish stance that cryptocurrency is on its way down.