A common sense stance of a retail investor to the current state of the crypto market
Bull runs are quite different from healthy growth. Yes, when valuation is increasing, the trend is generally defined as a bull run. However, a more detailed look at the market isolates valuation increase based on sentiment and hope from valuation increase based on an actual growth of the industry.
Bull runs are actually stirred and triggered by hope, sentiment and future perspective. In other words, “tomorrow looks good, let us buy today”. In most cases, healthy growth catches up. Bull runs are sweet and fun but there are definitely not forever. This is because of another fact known as today’s reality.
Bear markets are not based on the future, unlike the bull. It is based on today’s woe. All hell is breaking loose today, and so there is panic. This is the number one problem of the world financial market and why we have economic cycles. People buy the future and sell the present. In case you don’t know, people only buy into companies doing well today because they believe the trend will continue into the near future. But the smart ones know better; buy the rumour, sell the news.
If it ends here it would have been good, but we have these things called stock options and more importantly short selling. When the valuation of a financial entity goes down south, people make money from its decline through short selling. Short selling is only possible in the regulated financial market. (I mean, you can’t go to the market and short an apple fruit).
2018 was pumped up as a year that institutional money was going to enter the cryptocurrency market. And the truth is that some did enter but they didn’t act the way the hodlers thought they would. From the effect on the market, it seems kind of clear that at least some did short the market heavily. This is the end of 2018; any fund that declared that they made profits in fiat from crypto was obviously shorting the market. This means that big money affects the market. The market cap is currently less than $200B, the active daily volume is often less than $10B. Institutional investors often have massive volumes that swallow up everything happening in the retail world. More of them coming in 2019 might not be cheerful good news enthusiasts want.
These institutions are smart. They have the capacity to get the very best hands to manage the funds. They could force the market in any direction. They could make the market go up and they could make it kiss the dust. If you are a hodler, you need to know this.
How low can bitcoin go? The first question is, why is it going low? I answered that in a previous post. If you have seen that, then you can already predict the answer to this new question. I don’t have a number to share, but I think it can go as far as it can get, down until a number that will make an individual able to afford a substantial number of coins.
Someone mentioned on twitter that bitcoin won’t go to zero because he will make the order to buy all bitcoins available at $0.01. Another said he will outbid that by a couple of cents. So, bitcoin is not going to zero. All those saying it are messing with people’s minds to lose hope for its future prospects. Don’t be surprised if those same people come in a few years to talk about why the world needs bitcoin.
I once saw an interview of a popular economist I kind of liked. He was asked about the prospect of bitcoin and cryptocurrencies and he said he doesn’t see them being mainstream in 5 years. He still questions their relevance to a large extent. But when the journalist drilled him a bit, he said he would consider buying bitcoin at below $5k. Therefore, if you believe in bitcoin and you don’t buy at these levels, I don’t understand your belief. I get it if you sell because you need the money now, but if not, why are you selling?
One day, the bull will come back. Only that this time it will probably be much slower. As a retail investor or trader, you really have no hope in fighting out the market. You just have to wait and observe. I am hopeful for January 2019 for the market to pick up, but if it doesn’t then my next guess is sometimes after December 2021.
For the meantime, a strategy is required for every investor in the crypto space. ‘Buying and hodling’ is not enough. It looks genius in a bull market but weak in a bear market. Plus, you need to understand when to take the money you can spend and enjoy out. And also, how often you take money out. Consider this 5-coin strategy, but it would still need some customization from your end to make it your own personal strategy.
Finally, I don’t consider crypto trading to be a job except you are a professional trader/investor that manage other people’s funds (and you have been doing that for years). Even with the professional status I still question the value creation or addition. I believe in adding value to the world. Making money without adding value is the root of all financial problems. So, do your part to add value.
However, you have enough money in your hands and you are scared of crypto right now or you want to diversify, consider owning Hackernoon shares ☺. It doesn’t get simpler than that.
Nothing here is a financial advice. Be financially responsible for your own life.
Cheers!