Software

What Is Hodlbot and What Can It Do?

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hodlbot

After launching in early 2018, Hodlbot has become an increasingly popular tool among long-term crypto investors.

But what is Hodlbot? What Can Hodlbot do? And who should use Hodlbot?

What Is Hodlbot?

Hodlbot originally made its name as the creator of the HODL20 index. Like some of the other best crypto index funds, the index tracked the top 20 coins by market cap, allowing investors to gain broad exposure to the crypto market.

Today, Hodlbot has morphed into a complete crypto portfolio tool. It connects to either your Binance or Kraken trading account, then provides an interface for you to automate several aspects of your trading.

It’s an ideal tool for passive investors who don’t have the time or the knowledge to actively trade coins on a crypto exchange.

What Does Hodlbot Do?

The main Hodlbot interface provides access to dozens of market metrics if you want to create a new portfolio, or you can divide straight into the creation stage if you already have coins in mind.

Hodlbot also still offers the HODL20, along with two new indexes—the HODL10 and the HODL30. Each has its own governance rules. Make sure you research them thoroughly before investing.

When you’ve selected your initial portfolio, you can set your weighting strategy and backtest it against previous market data.

Most importantly, however, Hodlbot offers automatic rebalancing. As the crypto market moves, it will buy and sell coins based on your portfolio choices.

Customizable features include the rebalancing frequency and the ability to blacklist coins. The latter is useful if you want to avoid some tokens but still want to create your own index fund.

Does Rebalancing Frequency Matter?

If you are using Hodlbot to create your own crypto portfolio, there’s the inevitable question of how often you should rebalance it.

The simple answer: It doesn’t matter. Because each portfolio is unique, there’s not a single right answer.

The developers of Hodlbot have looked at this phenomenon in more detail in a blog post. On 10,000 backtests, they discovered no correlation. The article is worth reading.

Who Can Use Hodlbot?

Hodlbot does not impose any restrictions on location. As long as you have an account with either Binance or Kraken, you can use the app.

This is especially useful for crypto investors in the United States. Many crypto index funds—such as BIT10 on Abra—are not available to the country’s citizens or residents.

There are a few other requirements that you’ll need to jump through. Most notably, Hodlbot imposes a minimum exchange balance of $200 held in any cryptocurrency.

The user base is still small. According to Hodlbot’s data, around 10,000 people have an account. Nonetheless, the app has successfully processed $50 million of volume across 400,000 trades.

How Does Hodlbot Work?

Hodlbot connects to your preferred exchange using API keys. If you’re creating an API key for Hodlbot, make sure you enable trading permissions.

Any data sent between the app and your exchange is encrypted by Hodlbot using HMAC SHA-256 security.

The exchange is entirely responsible for executing your trades. No trades are ever processed on Hodlbot, and nor does Hodlbot hold any of your coins in a wallet. The app does not have withdrawal rights on your account.

How Much Does Hodlbot Cost?

If your account has a value of less than $500, Hodlbot is free to use. For accounts above $500, the cost is $10 per month.

As such, you need to think about how much money you allocate to Hodlbot. An account valued at just over $500 would need gains of two percent per month to break even.

Discounted plans are available for three months ($9 per month) and one year ($8 per month).

The Downsides of Hodlbot

We love Hodlbot, but there are still a few things you need to watch out for.

API Security

Some people might feel uncomfortable providing a third-party app with trading rights on their account. There’s not been any suggestion of security flaws, but there’s always a chance something could go wrong.

Minimum Trading Limits

Binance and Kraken both impose minimum trading limits. The limit varies from coin-to-coin.

For example, on Binance, there is a minimum trade size of $10 when investing in the BTC/USDT pair. There’s also a minimum trade amount of 0.000001 BTC.

Therefore, the more coins you want to hold in your portfolio, the larger the value of your portfolio needs to be. If you spread yourself too thinly, Hodlbot will not be able to execute the necessary trades to keep your portfolio in line with your preferences.

When you create a new portfolio on Hodlbot, it will provide you will a minimum recommended portfolio size.

Using Sub-Accounts

By default, Hodlbot will trade with the entire balance of your exchange account.

Some people may wish to keep some funds separate for other projects. On Binance, you can create sub-accounts if you’re a corporate or VIP 1 user. Other users can enable the feature by sending a message to support.

Kraken does not have a sub-account feature, but both Kraken and Binance allow users to create multiple primary accounts. It is not against either company’s terms of use.

Should You Use Hodlbot?

Hodlbot is not right for everyone. As with any investment decision, you need to have goals in mind before you commit your capital.

To recap, Hodlbot might be right for you if any of the following conditions are met:

  • You prefer a passive investment strategy over actively trading coins.
  • You want to maintain a balanced portfolio of coins without worrying about micromanagement.
  • You want to hold a basket of the top 10, 20, or 30 coins by market cap.
  • You hold at least $200 in crypto.

(Disclaimer: Blocks Decoded does not provide financial advice. Do your own research before you invest in crypto.)

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Dan Price
Dan has a background in both finance and technology. Previously, he worked for more than five years as a private financial consultant, advising clients on single investments, fund portfolios, long-term savings, and more. Dan holds professional qualifications from the UK's Chartered Insurance Institute, including a Certificate in Discretionary Investment Management and a Diploma in Financial Planning. Dan also writes for Blocks Decoded's sister publication, MakeUseOf. He started at the company in 2014 and has gone on to hold several key positions in the organization. In mid-2017, Dan finally started to invest in crypto. He is a firm advocate of index tracking funds and automated portfolio balancing. He's currently using the Crypto20 token and Hodlbot for exposure to the top 50 coins.
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