Opinion: Learning to Sail the Bitcoin Market

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On my last couple of articles I’ve taken the discussion away from price and volume, as I wanted to focus on the underlying bitcoin infrastructure and governance model, as well as on the technology developments that will push adoption.

However, it is equally important to understand how to behave during down-cycles and how to treat the fuel that drives cryptocurrency.

Our money.

How to ride a bear-market

–this article shouldn’t be taken as financial advisement as it represents my personal opinion and views. I have savings invested in cryptocurrency so take whatever I write with a grain of salt. Do not invest what you cannot afford to lose and always read as much as possible about a project before investing. Never forget: with great power, comes great responsibility. Being your own bank means you’re always responsible for your own money

If you look at the 1 year evolution of Bitcoin’s price, from July 2017 to 2018, what is see is that it grew 3x. This is, if you had invested in 1 btc it would now be worth around 3 times more.

Now, does history predict future prices? Obviously not.

But it can tell us a really interesting story. For one, will this bear market have a long-term influence on the price of bitcoin? Is the cryptocurrency market capable of recovering?

If you remember the words of expert traders and investors you should always buy when there’s fear, sell when there’s hype; during the last 6 months what I see is an amazing opportunity to snatch some bitcoin (or any other cryptocurrency for that matter), at a really discount price.

It’s like bitcoin has been on sale for the past couple of months, before the release of a newer, upgraded, cooler version of the software. Would you sell if you knew in a year or two the asset you bought could be worth 3x more?

The certainty of uncertainty

The reason so many people invest in bitcoin is due to its volatility. Without it, there would be a lower chance for agents making epic gains. Whoever is patient and has the cojones to not sell during extensive bear markets, will eventually take home a butt load of profits. This is what price history tells us: what eventually comes up must come down; except the opposite also happens.

Looking at the table above we can see many great opportunities to enter the market. I really don’t know that many assets that can crash more than 80% and then recover. 2 years after! It’s insane how speculative the bitcoin market is, but that is also a key factor to bring more people into the cryto-world.

You might still be worried though, how can anyone be sure what the future holds?

What if this is the only time ever the market won’t recover?

What if i lost all my money?

My advise is to stop going in circles. Literally.

The point is: ride the waves and don’t fight them.

If you don’t you’ll drown. Figuratively speaking.

Unless you have the money to move mountains (on this specific case the mountain being the price), it’s futile to worry too much what about you can do. The way I see it, this is a very simple binary game. You either win or lose by selling or buying. The options are quite simple indeed, what matters is timing.

Time spent on the market

There’s a really nice article explaining why timing is so critical, but the gist of it is that if you miss, for example, 10 days of trading, during peaks/lows, you could lose potentially lose more than 50% of all potential profits. This is, missing the 10 best days can lower your expected returns in halve.

What we ought to do is to actually wait patiently for a good opportunity to either buy or sell; instead of worrying, take these opportunities to either average your losses, by re-buying bitcoin, or to actually dig-deeper and study some techniques that can help you improve your predictions accuracy.

Nobody can time the market perfectly, but there are a few tricks to minimize your risk.

TA is definitely a great way to try better understanding price movements and how you can leverage them for your own gains.

I’m definitely not an expert when it comes to TA, so I would advise you to follow some people who do trading for a living. Two of my favorite are Daniel Jeffries and Alessio Rastani. They have completly different approaches, but that is what you should be looking for: people with different ideas, visions and ways of investing/trading.

The underlying logic always remains the same: buy low / sell high.

Now, accomplishing this feature isn’t an easy task; to make it simpler, I will make mine the words of many of the successful traders who came before and lend you the knowledge I got from them.  It may not be much, but it will give you my own perspective of time, relativity and the correct time-frame for investing.

If it works for you, build upon it. Knowledge clearly has network gains, as the more you share, the more people who can build upon your findings, making the entire network better.

Don’t believe me? Story time!

WEATHER FORECASTING AND STOCK MARKET INVESTING

One of Einstein’s lesser-known achievements was his explanation of a phenomenon that had long puzzled scientists—the crazy zig-zag movements of particles suspended in a liquid, which is also known as Brownian Motion. They didn’t know why the particles moved and weren’t even able to measure the movement. Einstein made the assumption that the particles were being buffeted by molecules in the liquid and then calculated the average horizontal distance that one of the particles would move in a given time interval. In 1908, a French scientist named Jean Perrin did experiments with a microscope and a stopwatch, and his results matched Einstein’s predictions—providing the first proof of the existence of molecules, a feat that won Perrin the Nobel Prize. But it also was the first time that the role of probability in physics was established. As physicist Carmac O’Raifeartaigh has written, Einstein’s work is the underpinning of our modern understanding of complex systems, which has influenced everything from weather forecasting to investing in stocks.

Now, for the steps. Bear in mind, these are just general guidelines to enable you to see investing through my eyes.

1. Find a reliable strategy

It goes something like this, right?

Joke aside, the first step is to find a strategy you’re comfortable with. There are plenty to chose from, but your goal is to chose one and stick to it. It’s easier said than done, especially if you like to glue your face to candle charts on a daily basis, however do not deviate from a path before you’re sure there is an abyss.

Falling is part of the learning experience.

Strategies take time to show results, like everything worth in life. Most successful traders understand this as well as, no strategy can overcome all obstacles.

Some bottlenecks cannot be avoided and you will make bad choices.

After all, we’re just human. Even bots make mistakes – as they are created by us.

Learning from those experiences is what can make you a better trader or investor. For example, if you had bought cryptocurrency on the 6 months prior to January 2018, you could be making a hefty profit by converting your cryptocurrency into fiat.

Anyone with a bit of sense in their heads, would at least convert cryptocurrency to cover the costs of entering the market. That way, even if the price went to zero, you would have your butts covered.

I was one of those people. Except, I decided to not sell.

Why?

My reason was simple:  how could i chose which assets to convert? Plus, had we reached the maximum valuation possible yet? How could i know? Sure it felt like a bubble, but how big could it get?

At the time I had less knowledge than what I have now. If I could go back, though, would I do it differently?

I had to fail in order to learn.

My strategy is simple: buy when prices are low, sell when prices are high. Because I missed the bull-train, I had 2 options:

(a) sell the assets at a much lower profit or at a loss and reinvest at a later stage,

(b) keep the assets, maybe buy some more and wait for another bull-run.

Whatever decision you think is the right one, then it is the right one.

The likelihood we look at money, risks and rewards the same way is quite thin, meaning, there are no right or wrong answers.

What matters to me is the ultimate goal: to make money; and the best way to do achieve that is to stick to a strategy and keep going at it – with a certain degree of critical thinking, as you don’t want to keep losing money in the long-term.

Let’s move into the next point. Where most fail.

2. Put in the hours

Time is a funny thing. Until a couple of years ago we thought time was a constant, this is, it was felt exactly the same way no matter where you were in the universe.

Of course we now know, thanks to Einstein’s theory of general relativity, time is actually relative. This is, the faster you go, the slower time will pass (relatively). If you hopped onto a shuttle and went to another galaxy at near the speed of light, it meant you would experience time differently from someone down in Earth.

Why is time important? Well, because I believe knowledge to be connected to your perception of time. It’s much easier to make good decisions when you have sufficient know-how and understanding to expand your event horizon. In our case, the event horizon being the limit of our own knowledge.

What I mean to say is that the more knowledge you have, the easier it is to see past a certain barrier. It can be news, others’ opinions, price movements or anything that could be a potential trigger for bad decisions.

To gain knowledge, however, there are no clever ways to circumvent the harsh reality of things.

No, there is no magic formula or interface to transfer knowledge into our little brains.

You need to dig-deep and find ways to learn as much as possible, about each and every field that dictates the price of cryptocurrency.

And oh boy, there are many! The below list is my own and it might not represent your core-values. It’s important to understand there are no right or wrong answers, only opinions.

i) Technology -> it dictates user adoption. Understanding how bitcoin and other cryptocurrencies work under the hood is to me, the most important value. But only because I like technology and it’s easier to spend time around the subject. Pick something you like to do and you won’t  work a day in life.

ii) Psychology ->it dictates market behavior. If you want a neat tool to understand when it’s a perfect time to sell, check google trends. People lookup bitcoin the most when prices are incredibly high. I would argue its our nature to buy when prices are high due to excessive FOMO and hype. That’s why it is so important to be a contrarian when it comes to market movement.

iii) Business -> it dictates investors strategy. Consider the following: if the shares-asset class is doing fine, how do you think the price of long-term assets, like gold or silver, will behave? Interest rates at zero make investors bullish on spending money on assets with huge returns, as making riskier gambles is cheaper due to money being cheaper to get. Don’t people say bitcoin is the new digital gold? What do you think it will happen when traditional markets enter a bear-run? In my eyes, cryptocurrency could be the answer.

iv) Philosophy -> it dictates market values. If you didn’t know, most technological problems are also philosophical ones; if you think of scalability, the hottest subject around cryptocurrency adoption, it becomes obvious the discussion is not whether you can scale bitcoin (or other cryptocurrencies), but how you’ll do it. Will you give up decentralization for efficiency?

These are the my four pillars of investing. Of course sometimes it’s blurry and subjects mix-up, so you always end-up expanding into different fields. Remember, critical thinking is key to becoming aware of how knowledge can be applied in different situations. To become a winner you certainly don’t need all the know-how in the world; there are plenty of examples that show success is not due solely to our big brains. You can’t master investing without mastering a bunch of other fields first. That’s why so many successful people who don’t have a formal education have made it.

Learn as much as possible, fail as soon as you can and repeat the cycle. There are no exceptions.

Work hard and always share knowledge with others. Remember, networks only grow if its community grows too.

3. Patience & Courage

Last but not least, a key ingredient makes most of us all miss the rocket to the moon.

How many stories have you read or heard of people complaining they either lost everything or sold too soon?

That’s how hard it is. Even experts and pros make bad calls – the volatility of the market can always catch you off-guard. You can’t forget it’s you vs the market.

Always.

At the end of the day what matters is if the call you made translated into profits. If you’re looking for lambos and moons, I’m sure the likelihood of losing your investment is quite high. This is, usually people who expect quick gains do not have the most important attribute for success: patience.

Rome wasn’t build in a day.

If you really want to succeed in this market, you need to go all-in. No, do not put all your hard-earned cash into bitcoin, but do dive-deep into cryptocurrency: either by learning about technology, business, market behavior, TA, or any other field you might consider relevant, you’ll be adding value to the market because your gambles will be more accurate and you’ll likely bet on better projects or assets.

Markets are cyclical. If you lost money now you can always recover it on the next bull-run, which in my not-expert opinion is coming soon.

One of the obvious reasons are ETFs. If, in one hand, bitcoin futures gave institutional investors a chance to bet heavily against bitcoin and make double-wins, ETFs will have the exact opposite effect.

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Set reasonable targets in your head and don’t get too greedy. Be patient and learn as many different strategies as possible.

At the end, any market is just a game of winners and losers.

Want to be on the winning side?

Sell high, buy low.

Featured image from Shutterstock.

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With an academic background in economics and professional experience in tech, I believe cryptocurrencies to be the fuel that will drive the 21st economies. I have founded Bityond, a tech skills-matching platform. Tweet me @Febrocas