In Praise of HODL

By Laura Desmond

Part 1. Heeding the Call

The origins of the word HODL — a cornerstone of a Bitcoin investor’s vocabulary — came from a resolution voiced on a forum in 2013. It was the verbalization of a man (possibly half-inebriated) of a newfound creed. He admitted that he had been tempted by those around him to trade his way to riches; enchanted, as it were, by the pundits who professed to have access to divine wisdom on timing the market with uncanny precision. Something rose within him on that day that inspired him to engage in honest self-assessment. And he proclaimed his verdict on himself unabashedly: “I’m a bad trader.”

This admission freed him from the interpersonal comparisons that sit at the root of any flawed decision process. In his naked and impassioned post he referred to the myth of the perfect and infallible trader, and refused to compare himself to that impossible ideal any longer. Declaring himself “bad” in comparison to the mirage broke him out of the cycle of feeling inadequate.

He declared a new objective for his journey: “I AM HODLING”.

This was his new mission statement. He resolved not to think about trades mistimed and opportunities squandered time and again; he resolved not to fall into a spiral of self-pity.

Five years hence, here we are. Financial markets in Bitcoin have evolved by leaps and bounds. Developments across the Bitcoin ecosystem have burgeoned. And, yet, the journey has only just begun. Still, the context has changed a fair bit since that first declaration of HODLing intent. And, so, it is perhaps time to review its merits.

HODL for the Hero’s Journey

The power of a culture can be measured by the attractiveness of its fundamental memes. When we think of what it means to be “American”, our minds are bombarded by memes that define its best and worst. Among these is the entrenched myth of the American hero. It depicts a paradise that is sullied by some threat —often unseen or diverse— and which calls to some hero. An unlikely hero heeds this call, musters the strength to fight the threat, and reclaims the paradise before quietly retiring from the public light.

It really is a powerful meme, to be sure, pervading a great many aspects of social, economic and political life. It is also a myth with universal appeal, because it is representative of a foundational meme.

A foundational meme is held in common to all of humanity. More generally, the foundational meme here is that of the monomyth, or Hero’s Journey — the narrative archetype for a wide range of stories that have inspired centuries of literature. So ingrained is the archetype in our mentalities that it is almost impossible not to recognize it instantly.

It describes a Journey (with a capital ‘J’) in three stages: The hero overcomes his initial fears and reservations to heed the call to embark upon the Journey; With the aid of helpers and mentors, he contends with daunting risks that he must overcome, slaying the dragons both within him and around him, during the course of an impossibly arduous ordeal; Finally, the hero returns, wiser than before, and transformed by the journey than he could have barely contemplated at its outset.

Developed formally by Joseph Campbell in 1949, the Hero’s Journey is a far broader template than we need to get into here. However, it is a template that is not meant merely as a typology for stories of fiction. It stands, in equal measure, as an overarching template for the life of an individual.

The foundational meme of HODL has rung true in so many ears precisely because it is Bitcoin’s call to everyone to embark upon a Hero’s Journey. HODL feels true because it is related to an intrinsic component of Bitcoin’s emergent culture, which is grounded in the Hero’s Journey.

Bitcoin has itself heeded the call to embark upon the Journey to rise against the Chimera of several decades of mismanaged sovereign currency regimes and idiosyncratically regulated markets. We are its helpers and its mentors during its own trials; but to do so, we must ourselves heed this call for a Hero’s Journey that is moored in HODL.

It would be altogether easy to dismiss HODL as a frivolous meme (coequal with BTFD, FUD and FOMO). That would be a mistake. It is actually emblematic of bedrock values upon which stronger cultural memes are eventually developed. And which support a culture’s foundations.

HODL to Create a Better “You”

The hero who starts at the beginning of the Journey is not the same person at the end. The two inhabit the same body, it is true, but they would not recognize one another if they met, so deep is the transformation that the Journey forces upon the hero.

Arguably it is this dissonance in the individual that makes the very first step of the Journey arguably its most significant. Heeding the call to adventure requires a newly forged and steely resolve.

“I AM HODLING!” is a declaration of intent, be it privately in the hero’s conscience or publicly on a forum.

This intent permits the hero to curb his pride and sloth and allows his to accept with grace that he cannot cross over the threshold into the unknown without deferring judgment to a mentor or guide.

Bitcoin is replete with guides — real as well as fake gurus — and the Journey challenges you to put Knowledge firmly as the objective in separating one from the other. Knowledge alone stands as the final arbiter of the merits of your mentors and helpers. Realize that the hero’s transformation cannot occur before he fights through the pain of his torment — before he slays all dragons — in search of a revelation.

The Hero’s Journey of HODLing liberates the hero’s energies from its prior occupation with trading, and from following the beeline. The threshold that the hero crosses allows him to expend those liberated energies in the pursuit of Knowledge.

There are, essentially, two versions of the same person in every story of a Journey. The hero at the beginning has preferences and values that do not accord with the preferences and values that the hero ends up with at Journey’s end. This, of course, is the entire point of undertaking the Journey, but it is also what makes it so daunting, so frightening, to undertake it at all. The hero must let go of his former self in the pursuit of his transformed version.

Bitcoin is proposing an alternate and more efficient monetary system for a new, more integrated global economy — one that is almost impossible to fathom clearly in all its complexities. The Journey’s end is unknown; all that is known with certainty is that the Journey inspires the acquisition of Knowledge, the relinquishing of outmoded paradigms and the abandoning of familiar but flawed trappings.

For most people across the planet, the very first step of the Hero’s Journey is an almost sheer vertical cliff. These are the people who have not yet seen reason in or rationale for heeding the call to commence the Journey. There are those among them who buy Bitcoin not to HODL but to trade with, and there are also those who see no reason to have anything to do with Bitcoin at all. Both sets of people remain stuck in their current mindsets and worldviews, unable to heed the call of adventure and embark on the Journey. The HODL Journey in Bitcoin sketches a map that becomes clearer with the acquisition of Knowledge. It proposes a first-best solution, but it is a first-best solution to a problem that the current selves of many people have not yet experienced keenly enough or that their current selves have learned to accommodate.

History, psychology and behavioral economics teaches us that humans are very often exceptionally able in constructing false realities in their present: realities that accommodate the tyrannies of their present that their future selves would be loath to tolerate. We are, in other words, hardwired to resist the urge to embark on a Hero’s Journey.

Perhaps this call to embark upon the adventure that is the HODL Journey remains unconvincing to you. If you need a different sort of ‘rationale’, read on.

Part 2. The Rationale for a HODL Journey

Let us turn our attention briefly to assessing the elementary logic for why the Journey is worthwhile undertaking.

To understand why HODLing is heroism, it is worthwhile considering that heroism is a public good. A hero undertakes a private cost to himself for a social benefit, the enjoyment of which by any one individual across the society cannot be diminished by anyone else.

In this ‘public good’ sense then, why is there a heroism value in embarking on a HODL Journey? The answer is simply that it makes the virtuous ownership of Bitcoin a ‘social norm’.

Consider, as outlined above, that the HODL Journey refocuses attention away from seeking myopic gain and from falling into a vicious spiral of being satisfied with trite insight from false prophets. This attention, once rescued, can then be spent on the acquisition of genuine Knwoledge on Bitcoin, of which there is no defined set of proprietors. This Knowledge is itself a public good: every HODL Journey, therefore, is an exercise in self- as well as public-education in at least some measure.

Remember that the HODL Journey is undertaken by the hero in the pursuit of a better version of himself upon his return. Bitcoin is, therefore, dealing with a large set of people who display time inconsistency in their preferences. The person who is yet to embark on the Journey, when contrasted with the same person who then breaches the threshold of adventure, represent two versions of the same individual; he represents an individual with time inconsistent preferences.

What does HODL do to resolve this problem of time inconsistency? HODL is the battlecry — the call to adventure — to the hero at the beginning of the journey. It is the urge to abandon attachment to the current version of yourself and set out on an adventure in pursuit of the version of the hero upon his eventual return from the ordeal ahead of him.

Naturally HODL exhorts us to extend our gaze beyond the present, and, in this sense, HODL is at the heat of lowering our time preferences. It forces our present selves to contend with that alternate reality; which is to say, HODL asks us to reconfigure our present set of preferences to permit the consideration of future preferences that are leveraged from the possibilities of a Bitcoin-based digital economy.

How specifically does HODL do this is only partly based in finance. Nevertheless, let’s start there, because that is the context in which the term originated, and where it is usually seen as being applicable.

HODL ‘cos you aren’t Axe

As any rapidly developing financial market, Bitcoin, too, has steeply diminishing returns from trading. It is fair to say that we are already in a world where systematic inefficiencies rarely exist — at least not of the sort that anyone but the most experienced of traders, endowed with exceptional discipline, intelligent trading bots, advanced analytics, and deep pockets can exploit.

Most of us are simply not fit to be traders, as much as we might like to imagine that we are basically the next Bobby Axelrods of the crypto world.

Besides, HODL is patently not defeatist ideology. Quite the contrary. HODL shows us what the sensible strategy ought to be. In terms of the Hero’s Journey, “HODL!” is the mentor’s advice to the hero in his Journey. A reminder that there are no shortcuts through the gauntlet, no matter what the temptress or the devil might be beguiling him with.

Besides, what HODL suggests is essentially just a “buy and hold strategy”, the effectiveness of which has been established by a rich literature in theoretical and applied finance.

Its roots are firmly based on the futility of trying to beat the market in trying to resolve the problem of Hayekian distributed information. It was early in the 1960s when the random walk hypothesis was proposed and then refined as a key component of the efficient market hypothesis. Both ideas essentially just suggested that the market can’t be systematically outperformed. There have, of course, been several challenges to this view of the world of finance, which have resulted in modifications of the thesis in favor of some biases that can be exploited.

However, again, these are very few and not privy to most of us who are not seasoned, professional traders who can also protect themselves from transactions costs and tax burdens that surmount from frequent trading. And even most of those traders fail to consistently outperform the simple beauty of a buy and hold strategy. HODL, therefore, is also sound advice, and a logically noble basis for a Journey at that.

HODL for all Heroes

A second manner in which HODL resolves time inconsistency is by making money itself a network good. No Hero’s Journey is fought entirely alone, and HODL is a call to recognize that, while every hero must start his own journey, there is a whole network of other heroes who are all with him.

Recall that a network good is simply one that exhibits network externalities, such that participation in the network, all by itself, becomes a positive source of utility to the user of the good and to other participants in the network. In other words, every hero who begins a Journey benefits the Journeys undertaken by others. No hero fights alone; All for one, one for all.

This is a key point, since traditional money ordinarily displays only very weak network good characteristics, and often none at all. Bitcoin, on the other hand, by virtue of being the basis for a network technology that can both be integrated into digital networks as well as be used to build entirely new ecosystems for other applications, emphasizes these network externalities.

To see this another way, consider the Bass (1969) model for technology diffusion and the adoption of a new product by a group of people. Simply put, the model shows that the process of adoption depends on the proportion of adoptions that occur on the basis of innovators (internal influence) and the proportion that occurs on the basis of interpersonal communications (external influence). The interaction of these two sources of influence describe a cumulative distribution with a distinct point of inflexion, beyond which the new product can be considered completely adopted.

Internal influence is the hero’s self-drive to heed the call of the HODL Journey, but external influence comprises the benefit every new hero receives from the Knowledge generated by others who are at various stages of their HODL Journeys.

The Bass model has a huge empirical literature in marketing and it spawned the famous Rogers model for categories of adopters. Imagined on a normal distribution, they look something like this:

However, while the Bass model describes a new product, Bitcoin describes a meta-product — a large and growing network of products. As such, arguably we should imagine a series of superimposed normal distributions of the type above for the set of all Bitcoin-infrastructural products; and, for a vast majority of them, we are quite decidedly to the left of the mean.

In terms of the Hero’s Journey, Bitcoin’s network of networks always lets you carve out your own story. Your call to HODL need not be the same as mine; indeed, they can be very different. Yet, in the end, they all redound to the benefit of each other.

As a proxy for this idea, consider the figure below. The three panels show the Google trend charts, over the past two years, for the terms “Bitcoin”, “Lightning Network” and “Smart Contracts” across the world. Interest in Bitcoin remains so far ahead of the other two terms that, if you were to plot them all on one chart, the other two essentially look like flat lines. Chart them separately, however, and the idea that an entirely new Bass process is emerging for these associated technologies is undeniable.


A final thought

The global recognition and endurance of the word “HODL” is itself testament to the power and allure that rests in the Hero’s Journey.

HODL is a call to aspire for things greater by adhering to a simple maxim. It is a commandment that makes instinctive sense. And that is the best premise for any foundational meme that has the promise to shape a distinct and valuable culture.