So you’ve decided to stick around. You’ve eaten your losses and consolidated your investment, and now you’re looking around at the desolate landscape wondering; where do we go from here?
It’s a solid question, and I don’t blame any of the people that sold and bailed out of the cryptocurrency market. We may be looking at a long wait before market prices are back up to where they were at the start of January – and we may never see the prices from December 2017 again. That’s not necessarily a problem, and there is still money to be made in the blockchain sphere.
We’ve seen some fairly massive drops in Bitcoin value in the past; including the ill-fated drop from $32 to $2 back in 2011. Granted, there wasn’t anywhere near the amount of capital sunk into the system at that time. History does not prove the future, but it can be a fairly good indicator – and I have no doubt that blockchain is here to stay. Let’s take a look at some of the golden rules of crypto-investing and see if they still hold up;
This is a no-brainer, but if everyone strictly adhered to this time honored advice, we wouldn’t have casinos. Make no mistake – much of the cryptocurrency market is speculative, and that isn’t much better than gambling. So long as you never commit critical funds into the system, you can enjoy the ride without losing your house and car.
Just like gambling, it’s possible to raise the odds so that they’re even between you and the house, or even slightly favor the player. If you do the necessary research before investing in a coin, you will have a better basis for your purchase – which goes a long way towards mitigating the startling array of vaporware coins floating around these days. There are legitimate use case projects with impressive partnerships and working products, and then you have the random hard forks of the original Bitcoin blockchain with arbitrary precious metals tacked onto the end of the name.
We’ve all heard the stories, or seen the movie, about the card counting sharks that beat the house and made off with bushels of casino money. Remember that for every successful card counter, there’s a hundred that fail – for a myriad of reasons, including misunderstanding of the system, overconfidence or even confirmation bias. You won’t know which you are until you see results, and that means never putting more money into the system that you can afford to lose.
Cryptocurrency is an almost completely unregulated market. Schemes that disappeared from the stock market over the past century are still alive and well within the blockchain. There are groups of people, even now, that are organizing “Pump and Dump” schemes across the crypto space. These unscrupulous groups are generally made up of three tiers – The Inner Circle, the Outer Circle and the public.
The Inner Circle decides what the target of their scheme is going to be, and loads up on that particular cheap, vaporware coin. They then announce this information to the Outer Circle, who buy into the currency at a slightly higher rate, but a much higher volume – this is the spark that ignites the scheme. The public catches on far too late, scurrying to chase the pump while pushing the price even higher. The Inner Circle then sells their supply at an insanely high return on investment, before informing the Outer Circle that the deed is done. The second tier bails out, at a reduced RoI, and leaves the public holding the vaporware coin – now back to the original price, or near to it.
Why am I describing this? So that you can be aware when you see a sudden 250% increase on a coin you’ve never heard of. At that point, it’s almost certainly too late for you to get in on the action. You’ll just be adding to the pump and dump shark’s feeding frenzy. Invest early in coins you believe in, and you won’t have this issue.
If you really want to get involved in day trading, preferring a hands-on approach to money maintenance, you may want to look into making markets. Long term speculation is probably the stronger gamble, over all, but there’s no reason you can’t make the market while you’re waiting. This tactic involves looking at the gap between buy and sell prices for a certain coin. In the regular stock market, which is a mature, stable system – most of the time – you’ll find that there is usually a convergence point between the two.
Of course, cryptocurrency is an immature and unregulated volatile mess. So you’ll often find a difference of as much as two to five percent between the lowest sell price and the highest buy price. There’s money to be made in that valley, but be careful you don’t get left holding the bag when the price suddenly drops. If you work with a currency you don’t mind holding, this isn’t a problem – worst case scenario is that you will end up with more of a legitimate investment.
It’s a microcosm of the traditional buy low/sell high mantra. If you can buy in at just above the highest buy price, and sell just below the lowest sell price, you’ll see a rate of return similar to the gap’s total percentage. This can be a good way to increase your total altcoin investment without additional fiat deposits.
This is where the cryptocurrency community really suffers. In the traditional stock world, taking profits is a must. When your investment is up, you take some of that money out and thereby realize your profit. It’s always tempting to let your money compound within the system, but as we just saw in the recent Cryptocalypse, you could also lose it all. You will always be better off taking some of that money out, even if you hold it in fiat currency to reinvest during a dip, correction or crash.
How do you determine when to take profit? Well, that’s up to you. If you’re very risk averse, you can take it out as soon as you make it – never working with more than your initial investment. If you have a high risk tolerance, you can wait until you double your money and take out an equivalent to that initial investment. That leaves you playing entirely with profit, which should theoretically mitigate any guilt you feel over losing it all. Of course, if you leave everything in the system and never take profits, you may find yourself working at a loss – or losing it all.
We’re in uncharted waters here, but that doesn’t mean the navigation skills we’ve gained are no longer valid. Just because we don’t know where we’re going, doesn’t mean we don’t know the method to get there. If you’re still in the market, play it smart and you could see the type of profits that we had thought passed into the realm of legend. Of course, if you don’t play it smart… well, all that bone ornamentation in Post-Apocalypse movies has to come from somewhere.
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