Doc's Daily Commentary
Mind Of Mav
5 Lessons From The 2018 Crypto Crash
Today’s market crash is very reminiscent of the 2018 crash. If you weren’t around for that, or need a reminder, here are five investment lessons I learned during the crypto crash of 2018.
1. Do Your Homework — Study, Study, Study
The American entrepreneur and best selling author Gary Vaynerchuk recommends all his followers to listen to his advice but do their 30–40–50 hours of research before investing their hard-earned money into anything.
Never invest in something you don’t understand, that’s what gamblers do.
Many people I’ve known started investing in cryptocurrency purely based on a colleagues advice. They had no idea about the underlying blockchain technology, let alone the application and vision of the altcoins they invested in.
Risk comes from not knowing what you are doing.
-Warren Buffet
So, when the cryptocurrency market crashed, they had no idea what was going on. They could not sell because they were at a loss and they could not buy as they had no faith in the currency. They were stuck!
2. Sell on the Rise and Buy the Dips
This is the most basic principle of investing, one that a lot of people did not follow while investing in altcoins during the 2018 crash.
What does it mean?
It means buy when the prices are falling to reduce your average cost and potentially make more profit in the future. If you wish to book some profit, then sell when the price is going up. It sounds simple in theory, but when it comes to investing with your hard-earned money, we tend to get emotional and do exactly the opposite.
Be fearful when others are greedy, and greedy when others are fearful.
-Warren Buffet
They might have started well, buying coins at low prices, but they continued buying as the prices soared. In a panic, they might have bought way too much when the market was at an all-time high (ATH). As a result, their average cost went up and when the market crashed — suffered heavy losses — notionally.
3. It’s Not a Loss Until You Sell and Vice Versa
The cryptocurrency market is highly volatile. One day the prices skyrocket, next thing you know it tanks like it is falling in a bottomless pit. So, some people never sold their coins! Even after the crash of 2018, they did not lose real money. It was notional.
Although they might have lost faith in cryptocurrencies, they bought altcoins worth a few more hundred bucks to reduce their average holding price.
Even though they had lost confidence in cryptos, they were patient enough to keep waiting. Eventually, the market kicked off again and now they’ve likely doubled their total investment. Not bad for someone who had lost >80% of it at one point. Patience and persistence always pay off.
Similarly, you do not make money until you sell your holdings.
You don’t score a goal until you score. Remember to sell on the rise and buy on the dips.
4. Never Chase a Coin… Ever!
This is arguably the most important lesson of all time. I thought I will miss the bus if I don’t buy a rallying coin — I was wrong!
The biggest mistake I made during the crash of 2018 was chasing the rapidly growing coins for fear of missing out
A few years later the same coins were available at 5% of the cost. Have a look at this 3 months chart of Bitcoin. Even for a stable coin such as BTC, whose value increased over 400% in the last year, the prices have fluctuated a lot.
Someone bought it at a price as high as $63K, whereas a sensible trader would have remained patient and kept adding small quantities during the dips averaging it around $45K.
So, always remember this golden rule:
Never sell in a panic and never buy during a euphoria.
The market will always give you another chance. And if not, move on to something else. There are plenty of other fish in the sea.
5. Don’t Put All Eggs in One Basket
A popular English proverb that is quite relevant in the investment world, especially when it comes to high-risk assets such as cryptocurrency. It is unregulated and highly volatile. Recently, a tweet from Elon Musk sent even the strongest of all coins, Bitcoin, crashing.
When all the cryptocurrencies took off this year, Ripple (XRP) lagged because of an SEC lawsuit. All those invested in Ripple are stuck. If it gets resolved, the days ahead are bright. But there is no certainty.
So, here is what I would advise based on my learnings so far — Diversify your portfolio so you have at least 3–4 coins that you can bank on. And try not to put all your money in cryptocurrencies, it is still in a nascent stage. Invest in other comparatively safer assets such as stocks and Mutual Funds (MFs). And only invest what you can afford.
If You Can’t Buy It Twice, You Can’t Afford It
– Jay Z
Final Thoughts
Cryptocurrency is a highly volatile and risky investment. It could be a highly lucrative investment if you do your research and invest smartly. But make sure you only invest what you can afford to lose. And remember these five lessons that I learned from the crypto crash of 2018.
- Do Your Homework — Never invest in something you don’t understand, that’s what gamblers do. Do your research before investing Risk comes from not knowing what you are doing.
- Sell on the Rise and Buy the Dips — Be fearful when others are greedy, and greedy when others are fearful. Contrary to what our emotions drive us to do, sell when there is a major rally and add up during the dips.
- It’s Not a Loss Until You Sell and Vice Versa — You don’t score a goal until you score. You don’t make a profit or loss until you sell your holdings. So, remember point #2. Sell on the rise and buy on the dips.
- Never Chase a Coin — The biggest mistake I made during the crash of 2018 was chasing the rapidly growing altcoins for fear of missing out. Never sell in a panic and never buy during a euphoria. The market will always give you another chance. And if not, move on to something else. There are plenty of other fish in the sea.
- Don’t Put All Eggs in One Basket — Diversify your portfolio and buy 3–4 coins so you are not overexposed in one asset. Invest in other comparatively safer assets such as stocks, Mutual Funds (MFs). Only invest what you can afford.
Lastly, do not be afraid to take a step back and get out of it altogether. Cryptocurrency trading is not for everyone, it is a highly risky asset. Quitting is not bad, changing your mind is a strength. Always, listen to your gut and follow your heart.
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