BTC - Educational: The Reality of the Market & Lessons Learned
Hey folks! Confused about the market? Yeah, me too. It's hard for me to understand how Bitcoin has the most bullish news it's had in a while (after breaking overhead resistance and hitting $8,500) to selling off most of those gains with little to no buyer support. How does that happen? Well I'll let you in on a little secret... the game is rigged. Last year, Zerohedge came out with an article that completely changed the whole way I looked at the market that I would like to share with you to give you some perspective. "Cryptocurrency Concentration - Just 4% Own Over 95% Of Bitcoin" - www.zerohedge.com/ne...-own-over-95-bitcoin
WHAT?! Think about that. Pretty unfair, no? Coming to the realization that we were playing a rigged game was really eye-opening and it changed my approach about Bitcoin and the crypto market in general. To the top 4%, this is taking candy from a baby. To the remaining 96%, they're playing the game hoping that cryptos could be the answer to a better life. But how can they compete? That's probably the wrong question to ask because the answer is it can't compete. Even if we united against the 4%, our 5% ownership cannot compete with their 95%. Meaning if you decide to play the game, you're in it for the ride. So what can we do?
Since my entrance into the crypto space in May 2017, I've learned some good, hard lessons along the way that I'd like to share with my fellow 96%ers to help you as you play the game that is crypto market and hopefully help you avoid making the mistakes I’ve made (yes, I’ve made all of these mistakes).
1) The market is a volatile one. Brace yourself! - New to the market? It may be best to sit from the sidelines to see what you're getting yourself into because the crypto market is unlike any other market out there. When you decide to jump in, have a plan and stick to it. If you are a long-term or inexperienced trader, keep your eyes to the horizon and avoid the everyday swings of the market. If you are a brave soul and want to day-trade or trade short-term, I hope you know your stuff. It's brutal out there. The volatile nature of the market will make you act emotionally, which is bad if you're a trader (today is a great example of this as we lost 10% in a day). Best advice I could give is plan for A, prepare for B. Regardless of what happens, you will have plan in place, which will keep you rational in an emotional time.
2) There are two games being played: BTCUSD and Alt coins/BTC, but BTCUSD controls the game - This is such a key lesson to understand it and it will help you immensely as you play the game. Since all alt coins are paired to Bitcoin, if Bitcoin is pumping, dumping, or forking, the alts will sell off to go into Bitcoin. Since alts are paired with BTC, this means you will lose Bitcoin value as your alt sells off. And if Bitcoin is losing USD value at the same time, you're losing both BTC and USD value. Example: Imagine you have 1BTC of Ethereum and 1BTC = $10,000. Bitcoin corrects 10% and as a result, Ethereum does as well. You now have .9BTC in Ethereum and 1BTC = $9,000 so your Ethereum is worth .9 * $9,000 = $8,100. Woah! If you had remained in Bitcoin you would have 1BTC = $9,000. This lesson ties directly with #3.
3) Understand the power of fiat, USDTether, TrueUSD, Nubits, and the like - "It's not what you make, it's what you keep." So how do you protect your investment if you want to keep the USD value of your Bitcoin before it falls? I bet there are traders out there that knew this secret back in Dec/Jan/Feb 2018. There are USDBTC trading pairs that allow you to sell your BTC for USD-based cryptocurrencies. Using our previous Ethereum example, had you sold your ETH for USDT at $10,000, you could pick up 19% more Ethereum after the 10% market dip. In addition, if both Ethereum and Bitcoin return to their previous values, you would have gained .2335 BTC or $2,335.
WHAT?! Think about that. Pretty unfair, no? Coming to the realization that we were playing a rigged game was really eye-opening and it changed my approach about Bitcoin and the crypto market in general. To the top 4%, this is taking candy from a baby. To the remaining 96%, they're playing the game hoping that cryptos could be the answer to a better life. But how can they compete? That's probably the wrong question to ask because the answer is it can't compete. Even if we united against the 4%, our 5% ownership cannot compete with their 95%. Meaning if you decide to play the game, you're in it for the ride. So what can we do?
Since my entrance into the crypto space in May 2017, I've learned some good, hard lessons along the way that I'd like to share with my fellow 96%ers to help you as you play the game that is crypto market and hopefully help you avoid making the mistakes I’ve made (yes, I’ve made all of these mistakes).
1) The market is a volatile one. Brace yourself! - New to the market? It may be best to sit from the sidelines to see what you're getting yourself into because the crypto market is unlike any other market out there. When you decide to jump in, have a plan and stick to it. If you are a long-term or inexperienced trader, keep your eyes to the horizon and avoid the everyday swings of the market. If you are a brave soul and want to day-trade or trade short-term, I hope you know your stuff. It's brutal out there. The volatile nature of the market will make you act emotionally, which is bad if you're a trader (today is a great example of this as we lost 10% in a day). Best advice I could give is plan for A, prepare for B. Regardless of what happens, you will have plan in place, which will keep you rational in an emotional time.
2) There are two games being played: BTCUSD and Alt coins/BTC, but BTCUSD controls the game - This is such a key lesson to understand it and it will help you immensely as you play the game. Since all alt coins are paired to Bitcoin, if Bitcoin is pumping, dumping, or forking, the alts will sell off to go into Bitcoin. Since alts are paired with BTC, this means you will lose Bitcoin value as your alt sells off. And if Bitcoin is losing USD value at the same time, you're losing both BTC and USD value. Example: Imagine you have 1BTC of Ethereum and 1BTC = $10,000. Bitcoin corrects 10% and as a result, Ethereum does as well. You now have .9BTC in Ethereum and 1BTC = $9,000 so your Ethereum is worth .9 * $9,000 = $8,100. Woah! If you had remained in Bitcoin you would have 1BTC = $9,000. This lesson ties directly with #3.
3) Understand the power of fiat, USDTether, TrueUSD, Nubits, and the like - "It's not what you make, it's what you keep." So how do you protect your investment if you want to keep the USD value of your Bitcoin before it falls? I bet there are traders out there that knew this secret back in Dec/Jan/Feb 2018. There are USDBTC trading pairs that allow you to sell your BTC for USD-based cryptocurrencies. Using our previous Ethereum example, had you sold your ETH for USDT at $10,000, you could pick up 19% more Ethereum after the 10% market dip. In addition, if both Ethereum and Bitcoin return to their previous values, you would have gained .2335 BTC or $2,335.
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9) Protect your coins and keep them off exchanges – I’m sure you have heard of Mt. Gox or have read of the numerous recent hacks where tens of millions of dollars in crypto had stolen from exchanges. Since exchanges have the private keys to your wallets, if they were ever to become compromised, your money will be too. It is best practice to move your crypto to a hardware, software, or cold storage wallet for security purposes. You’ll never know if and when it could happen.
10) Don’t believe the hype. Do your own research – This has really calmed down since the bull run ended, but there will be a time when projects will use every kind of propaganda to pump their coin “to the moon!” Hardforks, airdrops, upgrades, news of potential partnerships, road map accomplishments, you name it. All I can say is DO YOUR HOMEWORK. Airdrops aren’t honored (EBST), hardforks don’t happen (SegWit2x), deadlines are missed (XVG), promises of big partnerships are a huge let down (EMC2)… The list goes on. Understand that it is easy to get caught up in the hype. But like I said in lesson 2, “Plan for A, prepare for B”. Buying on the news of a huge potential partnership? Have a sell stop ready in case it’s company XYZ and not Apple.
11) Learn to buy the breakout or learn sell-stops This is something that takes practice and preparation, but it can make and save you so much money. Very bullish patterns break down all the time. Rather than get stuck in a trade that lost 10% after the price sold off, have a sell-stop order ready so if the price breaks down, you’ll take a small loss rather than a large one. Or place a buy order on confirmation of the breakout. You won’t make as much, but you won’t lose anything if there’s no breakout.
12) Risk management – Diversify, Diversify, Diversify – Ever bet on a sure thing that didn’t happen? Well I have. The crypto market moves fast, and unless you’re sitting at a computer watching the exchanges all day, you will have to be in the coins before they jump. As such, do your homework and invest in projects that you feel the strongest about. Read their Whitepaper and learn exactly what they are trying to do. Check their github and see if their developers are actively working on the project. Check out their roadmap and confirm they are meeting goals deadlines. These are the signs good projects. We diversify because it is impossible to time every jump. But if you have a diverse portfolio, you will cast a wide net to capture those gains. If you are only in 2 or 3 coins which are not moving, you may be missing out on potential gains because your portfolio is concentrated in just a few coins. You’ll be itching to break rule number 5, buy into an overbought crypto and it will sell off netting you a loss. Just to rub salt into your impulsive decision, the cryptos you just sold will more than likely jump. Sigh.
Wow! That got long-winded. Clearly I’ve made a lot of mistakes. But I’m here to tell you that I’ve learned from my mistakes and don’t do these anymore ;) But I hope these will help you as they have helped me. Good luck!
10) Don’t believe the hype. Do your own research – This has really calmed down since the bull run ended, but there will be a time when projects will use every kind of propaganda to pump their coin “to the moon!” Hardforks, airdrops, upgrades, news of potential partnerships, road map accomplishments, you name it. All I can say is DO YOUR HOMEWORK. Airdrops aren’t honored (EBST), hardforks don’t happen (SegWit2x), deadlines are missed (XVG), promises of big partnerships are a huge let down (EMC2)… The list goes on. Understand that it is easy to get caught up in the hype. But like I said in lesson 2, “Plan for A, prepare for B”. Buying on the news of a huge potential partnership? Have a sell stop ready in case it’s company XYZ and not Apple.
11) Learn to buy the breakout or learn sell-stops This is something that takes practice and preparation, but it can make and save you so much money. Very bullish patterns break down all the time. Rather than get stuck in a trade that lost 10% after the price sold off, have a sell-stop order ready so if the price breaks down, you’ll take a small loss rather than a large one. Or place a buy order on confirmation of the breakout. You won’t make as much, but you won’t lose anything if there’s no breakout.
12) Risk management – Diversify, Diversify, Diversify – Ever bet on a sure thing that didn’t happen? Well I have. The crypto market moves fast, and unless you’re sitting at a computer watching the exchanges all day, you will have to be in the coins before they jump. As such, do your homework and invest in projects that you feel the strongest about. Read their Whitepaper and learn exactly what they are trying to do. Check their github and see if their developers are actively working on the project. Check out their roadmap and confirm they are meeting goals deadlines. These are the signs good projects. We diversify because it is impossible to time every jump. But if you have a diverse portfolio, you will cast a wide net to capture those gains. If you are only in 2 or 3 coins which are not moving, you may be missing out on potential gains because your portfolio is concentrated in just a few coins. You’ll be itching to break rule number 5, buy into an overbought crypto and it will sell off netting you a loss. Just to rub salt into your impulsive decision, the cryptos you just sold will more than likely jump. Sigh.
Wow! That got long-winded. Clearly I’ve made a lot of mistakes. But I’m here to tell you that I’ve learned from my mistakes and don’t do these anymore ;) But I hope these will help you as they have helped me. Good luck!
5) Do not panic sell or buy! – Understand that cryptocurrencies tend to move up and down very quickly. As such, if you see coin up 30% on the day, don’t be that sucker and buy because you’re probably too late and you will soon take a loss on your purchase as traders take profits. I have also learned that when an alt coin is selling off to the point you just can’t take it anymore, you’re probably close to the bottom and the price will soon rebound. This is a generalization, but it often holds true under normal market conditions.
6) Stay calm. There will be losses – It’s unavoidable in the crypto market. However, the worst thing you after taking a big loss, is panic and double down your bet on another alt in hopes of getting it back. This is how people lose the shirt on their back. Either stick it our or lick your wounds and learn from the mistake. Don’t compound one mistake on top of another with a riskier (emotional) bet.
7) ”Don’t catch a falling knife” – This market saying refers to buying an alt coin that is selling off in hopes that near the bottom and will soon rebound. Boy this will save you sooooo much money. So before you try buying a crypto that is selling hard, let it hit solid ground first and show signs of reversal before committing to a purchase. You’ll thank me later.
8) Learn some form of technical analysis – Wow, has this been a lifesaver! And since you are reading this on TradingView, you’re already a head of the game. But learning how to read charts rather than depending on contributors is a priceless skill and will help you when you need it most. Plus, understand that the majority of contributors on TradingView are not professionally educated traders. They are more than likely amateurs who are submitting ideas with the intent of getting likes rather than being right. Since you are responsible for your own investments, it’s time to take responsibility and get educated.