How to tame the volatile beast named HIVE...

in #hive2 years ago

Dear fellow bees (hiveans),

I was engulfed in several discussion over the last weeks circling around how to invest or divest in such a super volatile beast with so many unknowns as HIVE is atm.

As I trust that nobody here has a crystal ball or is a clairvoyant we are all stuck with the same problem:
Wo do know nothing about where the price of HIVE should be and therefor we do not know if to buy, sell or hold.

Tomorrow I plan to do another post in which I will reason to derive some possible price points for HIVE.. let me know in the comments if you are interested... but for today lets take one step back and discuss how you should approach such a situation in general.

Its actually the same view you should have in all such wildly volatile markets with lots of uncertainties.. and actually atm it is exactly the same problem with the global financial markets.

So the key to every investment and trading - especially in such volatile markets - is money management.
While for traders being the utmost important thing overall, it gets more important in such markets for the buy and hold or hdl investor, too.

If you take for example the efficient market theory all possible information about an asset at a given point of time should be known and the correct price for such an asset should be perfectly calculated by the all knowing market.

So take the example HIVE:
If you want to invest a certain amount of money into HIVE because you want to bet that HIVE has a great future, you got to assume that the price will be higher in one year than it is now. So there would be no need to splitt your investment in different tranches or differ your investment to tomorrow as you would assume the HIVE price should increase day by day in small steps over the coming 365 days - at least in an ideal mathematical efficient market world.
So just go all in asap?

Not so quick!
There are two major problems:
1.) There are very big doubts if those markets (crypto and financial as well) should be considered efficient.
2.) The human brain is not a computer and is driven by emotions.

In more detail:
Efficient market theory:
HIVE has atm a very low trading volume so every major order drives the price up and down by more than 10%.. just look at the chart below.. I can assure you that there is no fundamental reason why the fair value of HIVE should be at 30 cents in one week and then suddenly change to 10 cents two weeks later without any major news. And we can also not be sure atm if there are no big positions that are restricted atm that could be liquidated at any point of time... (This is exactly the same in regards to the global financial markets. Yes there is corona, but there is no reason - if markets should be efficient - why the major indices should go down by 40% within a time span of four weeks and then go back up again by 20% in the following two weeks)
So you should always be prepared that the assets you are about to invest into could jump up and down like a crazy horse and you should be well prepared for the ride..

Human brain:
The nobel price winner Kahneman described very well that the human brain reacts much more (twice) to a loss than to a gain. That means that if you loose 100 USD your emotions are much stronger than if you gain 100 USD.. and this complicates this whole rational mathematical efficient market investor thing.

Lets do an exercise... close your eyes and watch a movie in your brain:
You want to invest 1,000 USD into steem and you buy it today at 10 cents and it goes up to 15... your investment goes up to 1,500 USD... how happy do you feel? What will your emotions be discussing this on discord or with your friends? On paper you made 500 USD! Great!
Now lets try the other side: You just invested 1.000 USD at 10 cents and the price goes down to 5 cents... 500 USD just melted away like ice in the sun.. you just lost 500 USD! What will your mood be discussing that on discord or with your friends? Should you sell now? Will it go to 0?? Did not all those other people warn you about this?

I trust you get it.. and you better be prepared for such a situation..

So how could a ideal strategy be to invest into HIVE considering that this is not an efficient market, we do not know the fair price yet and our brain will likely drive us mad if we loose our money?

The answer could be the cost average effect.
In the financial markets you do this by a constant monthly savings plan: A fixed amount of USD is invested into e.g. an index fund every month.. month by month, year by year.. so the market volatility does not matter so much.. its literally averaged over the months passing by..

Can we do this with crypto and HIVE, too?
Yes of course... so if you decide to put 1,000 USD into HIVE why not buy it over 2/3 / 5 or 10 tranches? One starting today, one in two weeks, etc..

But if you already invested everything you set aside for crypto into HIVE? What to do now?
Should you sell now? Its probably a tough decision to sell at 10 cents when it was at 30 cents two weeks ago... and only to have some spare cash at hand for a worst case scenario... so most people will probably just hold out.
But what you definitely can do: Prepare yourself for a further slump.. lets take the 5 cents scenario again.. so if you love HIVE at 10 cents you should be crazy for it at 5 cents... you certainly (and me, too) will not hope that it goes to 5... you invested because it shall go to 15 and higher.. but be prepared for the 5.. so if the unspeakable happens you should have an option to buy some more at 5 or you will feel like a poker player that just put all his money into the pot and is driven out of the game because he can't match a further raise any more... before he could even see his opponents cards...

So stay rational and calm but be prepared!

Yours solarwarrior

Disclaimer:
This is by no means an investment advise or recommendation neither for HIVE, crypto or any other financial instruments but shall give you food for thought to proof and optimize your own investment or trading behavior.

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Hello dear fellow bee :)

As I trust that nobody here has a crystal ball
i do have one, but it has never been working well ;)

let me know in the comments if you are interested...
Interested.

I personally believe that HIVE may have a great future, but it may never reflect in the price. Simply because people behind this project seem to care mostly about reaching utopia: freedom, decentralized governance, censorship etc. They do not seem to be very money/business orientated. And as such I wouldn't see hive as a well functioning business.

So this chain will be probably very alive, with many active users. But with very little businesses and even less marketing happening.

So you should always be prepared that the assets you are about to invest into could jump up and down like a crazy horse and you should be well prepared for the ride..

You nailed it. Especially it's the case with assets that suffer lack of liquidity, right?

Thanks for sharing this post with me. Upvoted already,
Cheers, Piotr

I plan to post my point of view how to derive a fair value for hive (and steem) today if my fellow bees are interested.. just let me know... ;-)

I am super interested!
On steem I am number 800, on hive 560, in ranking with power.
All this "all move to hive" is pure fantasy, it is the opposite :)
Why to stay on a second chain with less players and no future at all?
I am open at the moment, and I am following the bigger players as well, they seem to stay at steemit more as on hive.

Hi @schamangerbert,

where do you have the ranking numbers from?

In regards to steem vs. hive:
There are many things uncertain, but what I already discovered:
1.) Rewards on hive are on average 50% higher than on steem. This should be attributable by half to steemitinc's stake now accessing the reward pool and by another half due to other factors I could not determine yet.
2.) The collusion between Justin Sun and the exchanges is concerning to the highest degree
3.) Freezing the assets of the old witnesses is even more concerning

So why should I invest into tokens or a platform where I never can be sure that somebody does not take all my tokens - so @ steem for me it is definitely game over.

If hive will succeed, we will see.. but because of the non existent corporate governance at steem.inc and steem itself (witnesses) I do not see how this could play out well.

The ranking is on your start page of steemit or hive.blog after your SP od HP, just in the head.

  • Rewards: a nice additional for me as I am posting on both
  • Ähm, where is any kind of decentralisation on hive now? There are a few who are making it without any discussions
  • Freezing is not stealing, and who has started this bad behavior?

For me as blogger the split was a bad thing but I have to work with it now. I would like to see them all getting things done together.

For better or worse, the 13-week power down cycle for those of us moving from Steem to Hive is a form of dollar cost averaging. There’s simply no way to do it all at once.

yes.. this is for sure...

hard not to agree @preparedwombat

are you fully moving to hive (as many others do)?

Yes. Still over there for a bit, but moving here. I can’t tolerate what Justin Sun has done.

Can you share the source of the chart in your post?

in all situation involve in trading,it just involve risk. i have traded on binary option and i have lost more than what i invest because i always fear of taking risk then. investing also deals with strategeies

I fear binary options are in most cases just pure fraud / scams...