HOW TO ACHIEVE THE SAME RESULTS OF A PROFESSIONAL BITCOIN TRADER WITHOUT TAKING THE INHERENT RISKS
As a former gold bug and self taught economist I first heard about bitcoin when it traded par with the dollar and then again at the banker’s ban of Wikileaks and once again with the Cypress banking confiscation taking it over the $200 threshold. But I did not seriously study bitcoin until August 2013. And within 24 hours I realized what it was, looked at a chart, saw a huge head shoulders pattern developing and could not buy enough fast enough.
I rushed to open a Coinbase account but since I had no money when the ACH hit my bank account the first 10 bitcoin purchase was covered by a cash advance on my credit card.
But that’s not all. I have a rule never to give out investment advice. But this was an exception. I was hooked and recommended to all my family, friends, and business associates to buy 10 bitcoin and simply sock them away. Forget about them for ten years and buy more as a savings program. Invest $1,000.00 with the potential of million dollar gains.
In many cases I would send a fractional amount of bitcoin. .25 or .1 or .01 bitcoin just to encourage friends and family and suppliers to get started.
This is a common story for us not so early, early adopters.
All to no avail.
Only one of my sons made a small purchase of bitcoin. The other sons I simply made a small gift or in one case purchased a motorcycle with bitcoin. But all purchased a home with, of course, a heavy mortgage. Going against the trend is not an easy thing to do. (Interestingly, I met a man from Argentina at the Latin American Bitcoin Conference in Bogota who proudly told me his son had sold his condo in 2016 and rented a small apartment in order to buy bitcoin and could now purchase 10–20 condos if he so desired. Wow! What kahunas!)
My suppliers were another matter. I literally begged contractors to accept bitcoin. A few did. And all but my accountant sold out with a small gain. Frankly, I had completely forgotten I had paid the accountant a $1,000.00 invoice with 4.5 bitcoin with instructions not to sell the bitcoin until I got the call this past October.
You know the call. “Hey Ugly Old Goat, this is your accountant. Thank you so much for making me take bitcoin and telling me not to sell it! I followed your advice. Again, thank you so much!” A friend for life. I just paid tax on the biggest income of my life and my accountant’s invoice was less than half of what it was in 2013. Go figure.
Not to mention all the calls in November and December from those I gifted “Hey Ugly that $20 bitcoin you gave me that is now worth $1800! I didn’t buy any more like you said! What should I do now?” I heard from at least a dozen old friends, some I had not spoken to in years!
I suddenly remembered why I never gave investment advice before and why I will never give investment advice again. It is a wasted effort. Few, if any, people will follow the advice and when you are right you get the calls, “Hey Ugly Old Goat what should I do now?”
Well, fortunately I did not recommend buying in November or December. And, in fact, I was actively cashing in a substantial amounts of my btc holdings to acquire a few assets I long desired. But now what?
As a successful trader the one thing I know is I don’t know where the market is going. But for some reason few understand this. They somehow believe I am some kind of magical guru who can forecast the bitcoin market. And this is also the garbage you get in nearly every market chat group which is why I no longer give any of them the time of day. And I really can’t blame the chat group participants because they are simply emulating the canardish displays of delusional drivel by YouTube stars who foolishly claim such knowledge.
Nothing can be further from the truth. I have no idea if bitcoin is going to $1500 or $30,000 in 2018 or both! The game is to be prepared regardless of what happens. And limit the amount of risk taken on any given trade or equity swing to no more than 5% of my hodlings. In my last article I outlined how important it is to have the ability to blow out of bad trade with a loss and a smile on your face. If you do not have a smile of contentment when you take a loss you are over-trading. Pure and simple.
And for this reason 95% of the trading participants in the bitcoin market should not be there. Don’t get me wrong. I love you. We love you. Without your repeated failures I, and other professionals, could not eat your lunch.This Ugly Old Goat loves to eat rekts. Especially in a highly leveraged derivative world like what is offered on Bitmex. It is a professionals market and if you do not know what you are doing you are best advised to stay away.
From trading that is, but not from bitcoin. Bitcoin is unconfiscatable and that is its unique intrinsic value. The new assets I have acquired can all be taken by the powers that be. Bitcoin is uniquely different and hence valuable.
THE FIVE PERCENTERS AND THE SOUND MONEY TRANSITION
So how do we best advise the new bitcoin arrivals who are eager to enter the market? Those who should be entering the market to participate in the global sound money transition but don’t know where to begin? Well, my first task is to get you into bitcoin and bitcoin alone. And that can be a very difficult since 95%+ of the information on the bitcoin and cryptos space are scams and millions are spent to lead you into these scams.
But there are what I call the 5 percenters. And for the most part we all know each other. Tone Vays, Jimmy Song, World Crypto Network, The Bitcoin Meister, Trace Mayer, any and all Bitcoin core developers, Samson Mow, WhalePanda, Tuur Deemester to name a few and this is by no means inclusive. My apologies to those I have left out. There are thousands of us and we can usually recognize one another within minutes of a conversation, a post or even a response to a tweet.
And within this 5% there are impostors of the worst kind (wolves in sheep clothing) who try and sometimes successfully invade 5 percenter space with the right sounding spiel for bitcoin, only to lead lambs to slaughter while lining while their pockets from their own ICO or altcoin that’s promoted as “better than bitcoin!”
The crypto space is 95% scams promising riches, while the 5 percenters rarely make such claims. 5%ers outline the potential rewards but emphasize the risk and technology while down playing the promise of wealth. (Translate: they are honest.)
Historically, 80–90% retrenchment from the highs has happened before. In 2015 bitcoin traded below $200 after reaching a peak of over $1,300 in 2013. So a retrenchment to under $2000 can hardly be discounted. (This is not a prediction. It is simply a fact. A fact that all wise bitcoin hodlers consider. ) Bitcoin is a risky business. And those of us who have been around the block emphasize this fact. We generally emphasize the downside, not the upside.
THE COMING PERFECT STORM
A collapse in the crypto space has been long anticipated. And by crypto space I am talking about altcoins and ICO scams that are coming under increasing scrutiny and offer nothing of value but to enrich the issuers and promoters. When these scams are finally unmasked for what they really are it could have a short-term devastating effect on bitcoin. By the same token (no pun intended) this same unmasking will reveal to all the underlying value of bitcoin. And due to this near perfect storm of crypto scams collapse combined with promising new bitcoin innovation, volatility and price swings will likely be violent and pronounced in 2018 and beyond. Yes, a price swing below $2000 and over $30,000 are both possible and the wise hodler keeps this in mind. It is simply a fact that this is the current state of our global economies awash in the tsunami of fiat paper money. It is the nature of the beast.
Further, there are some hodlers who have made long term fiat commitments in November, December, January, February based a bitcoin price of $7,500 and higher which sets up the real possibility a long grinding bear market shaking out hodlers who have switched from being strong hodlers to weak hodlers with fiat payments due 3 months, 6 months, 12 months or even 18 months down the road. They have essentially put their bitcoin at risk and a sell-off under $2000 cannot be discounted to shake out over-extended hodlers. (Again, this is not a prediction. It is simply a fact that a wise hodler must ask, “Can I weather a perfect storm and take advantage of such a situation if it presents itself?”)
Success is not a matter of luck. You have no luck if you cannot play the game. Those who maintain a position to play the game will eventually get lucky. And the amount of luck relies heavily on the strategies you develop now. That is the purpose of this series of articles. To help you develop the winning entrance and exit bitcoin strategies
So just how can we guide the newbie through these stormy waters and potential minefields? How do we guide our business friends, employees and fellow successful entrepreneurs through a possible slow grinding bear market and/or coming violent tidal waves of paper fiat and eventual hyper-bitcoinization? The answer is lies with bitcoin dollar cost averaging.
The Power of Bitcoin Dollar Cost Averaging
Dollar cost averaging is simply the magic that happens when you purchase a fixed dollar amount of an asset at specific intervals over a period of time.
And the results duplicate and even outperforms the portfolio of seasoned traders so long as the underlying asset fundamentals remain in place.
By definition you will buy the greatest amount of the underlying asset at the lows and by hodling your results will match and even outperform the most seasoned traders. And this is accomplished without the risk and inherent dangers taken by speculators who perform the noble task of providing market liquidity that as an investor and entrepreneur we need to buy and sell (translate: do business) both locally and globally.
To illustrate, the table below shows the results of dollar cost averaging starting at the last bitcoin peak in January 2014. Please note this table is edited to reflect the recent price decline.
The table illustrates a monthly purchase of $500.00 on the 15th of the month beginning on January 15, 2014. This is based on a 6% monthly saving rate on a household income of $100,000 per year.
Please note this illustration is based on the same principle of money management outlined Blowing Out At the Bottom With Smile.
First, let me say that I closed out all my speculative long bitcoin positions with Bitmex on the low of March 18th at…medium.com
The risk is 6% of income. The total investment over 51 months is $25,500. The value on March 15, 2018 is over $410,000. The amount purchased is nearly 50 bitcoin with an average purchase price of just over $512. The maximum draw down was January 2015 with a draw down in equity of 50%+. The peak was December 2018 with unrealized equity of nearly $873,000. The result is on par with top professional bitcoin traders without exposure to the inherent risks involved with trading.
Even following bitcoin crash, dollar cost averaging accomplished an unrealized equity of over $275,000 from a total investment of $29,500.00
Further, dollar cost averaging from the December 2017 peak saved an investor the heartache of purchasing the top of the market only to watch it lose 80% in value. Even with the very worst timing a total investment of $6,000 has a draw down to $4,227.56 or less than 30%.
So should those who are looking to transition buy into bitcoin? The answer is last month, this month, next month and every month thereafter. The monetary transition remains in its infancy. The wise hodlers of today will be the fourth wave early adopters of tomorrow.
My job is to spread the bitcoin message without hype, without the promise of instant riches but with convincing argument. Those with ears will hear. Those without ears cannot. The purpose of this series is limited to those who have ears to learn time tested market strategies and apply these strategies to bitcoin. Success is for the few, not the many. Welcome aboard.
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