Crypto Trading: key takeaways and lessons learned

In 2017, we witnessed investors from all backgrounds flock to the crypto space in the hopes of getting in on the latest industry boom. As a result, the altcoin industry saw an unprecedented influx of new money. Now, as coins become more and more inflated, the market continues to reward those willing to invest in seemingly speculative (I’ll come back to this) technologies. The purpose of this post is simply to educate and explain my experiences, lessons learned, and overall thoughts about the crypto market that I’ve witnessed over the last 7 years.

We first heard about Bitcoin in 2011 while surfing a tech subreddit. Simply described as “internet money,” a user provided an advisory post that suggested those interested in emerging technologies should look into Bitcoin. I did. Since then, we've lived and breathed crypto. One of our team members wrote their master’s thesis on the regulation of cryptocurrencies between 2014 and 2016. We have been very embedded in this now insanely popular technology that we truly believe has been and will continue to revolutionize the way information is shared in the world.

So what have we learned?

Like any investment, achieving returns is not possible without assuming risk. The crypto space is no exception; those seeking the extraordinary gains of crypto assets should not assume that the risk isn’t proportional.

First and foremost, anyone looking to invest in cryptos should ask themselves one thing: will I be okay if I lose my entire investment? The answer to this question is always subjective, but the general notion is that anyone investing their life savings, personal or business loans, mortgages, etc., should be fully aware of just how insanely risky that is. People have done this, and benefitted immensely, but that does not lessen the inherent risk the market presents to investors. Indeed, 24hr trade cycles, market manipulation, false information leading to strategic sell offs, and regulatory changes only begin to capture the long list of factors that could cause a crypto asset to lose its value. Therefore, it’s extremely important to be fully aware of the inherent risk in investing in cryptos.

Regardless of one’s motivation and/or amount they’re willing to invest, the second thing to do is research…research…and research some more. We've compiled an index of source links (see bottom of article) that anyone looking to get involved, or already has should read to fully understand why blockchain is disrupting industries on a global scale, and how cryptocurrencies contribute to said disruption. Plus, we'll be posting more articles in the future, each of which will further break down the intricacies of crypto trading, blockchain, and the legal regulatory impacts of a technology that prides itself on being secure, anonymous (depending on the token), and very very fast.

A “hodlers” mentality:

If you take away anything from the strategies we talk about, the number one lesson we've learned is that those who hold, have the highest probability of making the most money. The reasoning behind this is straightforward: the long term is easier to predict than the short term. Nearly every analyst who studies this space believes that blockchain technology will eventually revolutionize our world. Therefore, investments in blockchain will eventually yield returns to reflect that revolution over the long term. The short term is far less predictable. Trading strategies seeking to time the market and constantly shift capital from one crypto to the next will erode their returns through trading fees, not to mention make the investor suffer from high blood pressure.

Let’s be honest, a month in the crypto world is equivalent to a year in traditional financial markets. When “10x” becomes a common expectation for crypto investments, you know the industry is traveling at a pace far beyond anything we’ve seen before. However, when analyzing overall trends of cryptos, starting with Bitcoin, those who’ve held on the longest have made the most. Therefore, a 2-5 year investment portfolio that you aren’t constantly changing in an attempt to capitalize on the most pumped coin that week will wield you far more returns.

Known as the “hodlers,” mentality (a now commonplace term accidentally created by a reddit user back in late 2013 who wanted everyone to know they would be holding on to their Bitcoin investment in light of the most recent “crash” from over $1,000 to below $700), this strategy focuses on holding on to your investments through the ups and downs because there are intrinsically more ups (for now). Indeed, the reddit users who held back in 2013 turned out to be extremely prescient because while Bitcoin would not surpass the $1,000 mark for another three years, 2017 saw the price reach over $20,000. Overall, the lesson is that buying and holding a sound diversified portfolio consisting of cryptos that have real world application has the highest probability of wielding you the most gain.

Lessons Learned

  1. Corrections are a reality, but it’s a good thing. With any substantial market increase, comes a correction. The correction has yet to equal the amount gained in the history of Bitcoin, but it consistently pulls back when gains are so substantial that those holding reach a point where they, rightfully so, decide to take profits. I recommend once you double your initial investment, take it out, and then continue to hold onto the amount of profits you have. That way if the market takes a seventy (70) percent correction in a few days, you don’t lose any of your initial investment.

  2. Avoid pump and dumps like the plague. Market manipulation is around every corner in the crypto industry, and pump and dumps groups are at the forefront. This is when a group of individuals get a group of people to all buy a coin in order to inflate the price artificially, and then sell coordinate a sell point when the price is high. This is a classic rinse and repeat cycle where people running who start the group have a somewhat larger amount of crypto holdings, and they use these holdings to rope in early participates by giving them a profit. People are then enticed to buy, and then the people running it dump the coin. Be wary of substantial spikes in price that are not accompanied by news or developments explaining the gains.

  3. Never buy a coin that is “mooning.” A crypto moons when its value goes up astronomical levels in a very short period of time. We've seen this happen countless times, and the best thing to do is simply ignore it. Most times it’s either a pump and dump group (see above), or it’s some significant news event about the crypto, e.g., when Stellar, also known as Lumens, skyrocketed after an announced partnership with IBM. We're not saying buying a coin because of an announced partnership is a bad idea, but remember that corrections can and do occur, so unless you’re looking to hold the crypto longer than a couple months, it’s most likely in your best interest to avoid a coin that has already increased substantially. You missed it, better luck next time!

  4. Do your research. First thing to do is read a cryptos whitepaper. Because there are thousands in existence now, it’s impossible to do this for every crypto you purchase, so you can ask teams directly. Almost every crypto has either a Slack or Telegram channel, and you can message the moderator (who works for the company or foundation supporting the asset) directly. Direct inbound questioning of crypto representatives is underutilized; imagine being an equity analyst and having a direct line into the CIO! Use this resource. Moreover, figuring out why this crypto exists and what industry it’s direct at is equally important. What is the inefficiency in that industry that this crypto’s platform will address? Is it slow transaction speed? Is it high data storage costs? There are plenty of ways cryptos are changing traditional industries, but make sure you figure out whether the one your crypto is addressing needs changing.

  5. Immerse yourself in the crypto community. The crypto community can be a very self-regulating just place. There are plenty of people out there who understand the impact blockchain technologies are having on the world, and thus will to help those looking to learn more. Additionally, when beginning your research, while its extremely important to understanding the utility of the crypto, why it exists, what its whitepaper says, who created it… make sure you develop solid relationships with people who understand the technology so that you can pressure test the hypothesis you come up with while researching. Sorting through the false information is no easy task, but when you link up with people in this for the right reasons, it can really help you develop knowledge and expertise.

  6. Overcome the FOMO. Stories of people making millions in the crypto space are everywhere. To be clear, no one knows what will happen with cryptos. The most intelligent people across all industries have made countless predictions, almost all of which have been wrong. Do your best to avoid the hype. Be smart about what you do. Never rush to buy or sell. There is plenty of time, and doing the work before, during, and after your investment will put you in the right direction. A good way to avoid these feelings is to not check your portfolio that often. Make your educated buys, and sit back and wait.

  7. Time your buys. When watching the market, look at the larger market cap cryptos, e.g., BTC, ETH, XRP, etc. When these cryptos fall below their 50-day moving average, many people holding these coins sell based on fear of losses. This is a good time to buy. For example, there were four (4) instances in 2017 where BTC fell under its 50-day moving average, and each time, within bull run began within three days. Keep in mind that Sundays and Fridays are the most expensive days to buy BTC. Don’t hastily jump onto an exchange looking to purchase at market prices when the market is highly volitle.

RESOURCES:

http://coinmarketcap.com -- provides current values, market caps, and historical data.

http://www.coindesk.com -- current news concerning cryptos.

www.poloniex.com, www.bittrex.com, www.binance.com -- crypto exchanges. Something to keep in mind is that these function a bit differently from sites such as Coinbase, Gemini, and Kraken in that the trading sites offer the ability to trade in altcoins on Bitcoin, Ether, and USDT markets, so you don’t directly send fiat into poloniex, bittrex, or Binance. You first send it to Gemini or Coinbase, then make purchases into cryptos (do ETH or Bitcoin Cash for lower transaction fees), send to trading exchange and make buys/sells into altcoins.

One of our main sources for cryptos is reddit (which is actually where I discovered Bitcoin back in 2011). Basically, if anything happens (or is going to happen) in the crypto world, it’s going to be on the following subreddits before any news site picks it up.

https://www.reddit.com/r/Bitcoin/
https://www.reddit.com/r/ethertrader/ (you have to be invited to this one)
https://www.reddit.com/r/btc/
https://www.reddit.com/r/cryptocurrency/
https://www.reddit.com/r/cryptomarkets/
• Bitcoin talk forums
http://cryptopanic.com - An aggregator of various crypto sites.
http://cryptomaps.org – shows different pricing across markets.
http://onchainfx.com – like coin market cap
http://icotracker.net – upcoming ICOs
http://icobench.com – upcoming ICOs
http://solume.io - Twitter mentions compared to price change
https://bitcoin.tax - calculating taxes owed on your crypto gains…not that great.