I am not a professional trader, or investor.
I can only offer you my opinion, so do with it what you like but please do not consider it advice.
But, what I would like to lay out is a strategy for looking at Crypto (Bitcoin) that could be considered boring (I hear less risky) yet may still have enormous upside.
People are getting burned by Crypto currently, the two big coins are down around 50% as of this writing, and those who got caught in the hype, got involved late in the spike are bleeding..
And as per usual, the negative press are out using terminology like ponzi scheme etc.
You know, we’ve heard it all before.
Yes, BTC and Crypto in general boomed in the last year, which, for those who have been paying attention for a while will see this as par for the course, but further satiates the mass adoption fears from before.
Governments regulating Crypto out of relevance, or banning it outright, has been a huge worry. The greater the mainstream adoption, the less likely your coins can be rendered valueless overnight, by the stroke of a bureaucrats pen.
The Big Picture
Many people new to the game do not realise that aspects of Crypto are a direct threat to the central control mechanism of most societies.
Fiat currency is a string attached to everything that happens within economies, which can be manipulated at any point. These manipulations can recalibrate the value of your life savings and labour, also force you to do things you would rather not.
Those in control will start to squirm to get their way, using regulation as their preferred method of control. Let’s take the example of Jamie Dimon (Chairman and CEO, JPMorgan Chase) for instance, originally dubbing BTC as ‘a fraud’ back in 2017 is now scrambling to get in the game. His advantage, usually endorsed by the powers that be (just look back to the 2008 bailouts), was likely expecting Crypto to have been regulated into irrelevamce by now.
New York (CNN Business) JPMorgan Chase boss Jamie Dimon famously bashed bitcoin as a “fraud” that global governments would “crush.” Less than two years later, Dimon is pushing his company headfirst into the crypto space.
It is only the last year, that confirms as much as we could hope for that mass adoption of Crypto will be a thing.
The more it is accepted on the whole, the lesser degree any Government will be able to get away with restricting it. A decentralised deflationary coin (ex BTC) does not benefit the old guard in any way, it only threatens their relevance… and eventually their existence.
Trading versus Investing
To be able to trade something with competence, you need to have a full understanding of all of its attributes, and mechanisms within the marketplace to predict it’s future price. There is also a higher level of risk, and you may get burned if you don’t know your entry and exit points.
Remember, you will only have a created a profit (against fiat) when you have actualised your gains, ie have exited the market. You may have created a fortune in Doge overnight, but unless you have exchanged out for $, you may yet still get wiped out. As the fundamentals of Doge are weak, you still run the risk of it all going to zero.. but also having had an enormous emotional rollercoaster in the mean time.
Personally, I believe trading to be too risky. I would certainly never short when the overall trend is long.
There are, and will continue to be, people who can make a success of trading. But, I would wager that most traders have made the majority of their gains from either HODLing (buying and holding for the long term), or using the ‘everyone is long crypto’ base to their trading plan.
A strategy for the more risk averse (of whom I am one)
The concept of ‘gains’ is a relative one. You have to have an anchor point to be able to conceptualise a gain..ie a purchase price as an anchor to which you judge your sale price, in terms of a gain or a loss.
So, looking at the current price of Doge at $0.35, if you bought at $0.10 you have gained, if you bought at $0.60 you have a loss.
The question is, how do you best even out your entry price over time, to best compensate for market fluctiations?
Cost averaging is hardly a new concept and it is unlikely I will blow anyone’s mind by bringing it up. The concept is to purchase the same $ amount of something at regular intervals. This averages out your entry price over time. Sometimes you will be buying cheap, sometimes you will be buying high, but over a period your will average out to a fair price for your overall entry point.
I personally use an adaptation of this, which is also good for discipline. I purchase Crypto with 10% of any income that I receive, from whatever source that may be. Yes, cost averaging applies on the regular income sources, but there are also kickers with the irregular sources. (To be competely transparent, I did stop this when the BTC price hit 8,000GBP, but will resume soon when the price settles itself again)
View your Crypto as an asset
Many Crypto investors don’t really have an exit strategy from what I can see, and this is where this article may present something new for those of you who have taken the time to read to the end of this article.
It looks like Crypto is going to be around for while. It also looks as if many coins will be chiselled away into obscurity due to poor fundamentals. But, there are coins out there that look like they will pass the test of time. In my opinion, BTC, although becoming boring to many, still presents one of the sturdiest options, with considerable possible future upside.
Do not sell your crypto. Borrow against it to purchase cashflowing assets.
If you sell your crypto, you will likely incur Capital Gains Tax (varying on where you are situated can be up to 20%). If you borrow against it and pay back what you have borrowed with the income from your newly purchased asset, you will likely incur no tax, and keep the long term upside exposure of your crypto. A proper win/win.
(Do obviously speak with a professional with regards your tax liabilities, remember, these are just ideas and are not to be taken as gospel or advice)
You can look at this another way too.. You have purchased your new asset at a 20% (or whatever you CGT rate is) discount. Yes, you will have interest to pay on your debt, but you will still have the upside that may likely cover it.
Plus, have you really incurred an interest loss when the income from your new asset covers it all?
Why do I defer back to BTC?
BTC has a space that is well know in the market, is also decentralised, and just as importantly has a maximum total coin amount (21m). This means, as long as demand is rising, the $ price will rise too.
Most people know inflation as rising prices, it is not. Technically speaking, it is the inflation of the Money Supply, a symptom of which can be seen in prices rising (more accurately described as a decrease in $ purchasing power due to increased supply)
Having a total max coin amount is fundamentally important if you are looking to hold over the long term, otherwise you risk value being whittled away by the issuance of new coins (past a point).
Holding BTC will also catch the inflationary pressure resulting from the more recent USD money printing. There is a reason that many describe it as Digital Gold.
HODLing Crypto is not sexy, but it may present a more sturdy plan for the majority.
Just imagine how thrilled you would be having done nothing but HODL the BTC you bought at $50 a coin? Remember who won in the end out of the Rabbit and the Tortoise..
To your future 😉