Don’t throw away your money
Blindly following YouTube-ers to invest in cryptocurrencies?
A case study about blindly investing in Bitcoin and other Cryptocurrencies based on reviews by popular social media cryptocurrency influence-r
This article is a piece of advice for new and old investors in cryptocurrency. And that advice is never to rush into buying a cryptocurrency based on its mentions on social medial, even if it is the best and most trusted social media cryptocurrency accounts. This might seem fundamental to many of you but I believe a major chunk of new and young investors still FOMO in many projects.
Never ever FOMO (Fear of missing out)
What are the reasonable steps an investor like you or me would take before buying a cryptocurrency coin or token? Maybe we check the price, check the official website, nerdy ones will perhaps read the whitepaper, cheeky ones will check the team, and the LinkedIn profiles of every team member, some of us might jump on their official social media channels and check out the discussions.
Is there a shortcut way of doing this? Maybe just search a YouTube review about that coin/token and make our decision based on someone else’s review in which supposedly they have done all this already.
Now, this is NOT a post about one specific YouTuber. One day I just thought that if I solely relied on someone else’s research on cryptocurrency projects to help me make a buy decision, then what would the result look like? So I thought I will find the answer to this question by doing a case study. I chose DataDash because he has one of the best and most followed cryptocurrencies YouTube channel.
The purpose of this article is not to criticize DataDash on his choices of picking cryptocurrencies as long-term holds or his picks of projects what he thought had good fundamentals and then those projects died. Neither it is to promote him for his excellent picks that ended up as dream moon-shot. The purpose is to highlight to people the outcomes of blindly following someone, even if that someone is arguably one of the most brilliant and honest researchers among cryptocurrency influencers.
DataDash has always said that his picks are not financial advice and always recommended to DYOR (Do Your Own Research) and even add your picks for a long-term portfolio.
But the point is that once you have done your due diligence by reading whitepapers, checking websites, talking to the team, and so on, (all of which and more DataDash provides on his channel) what are the chances that you end up losing your money?
So here is what I did.
I made a list of the cryptocurrencies whenever they were mentioned on his channel for the first time. I looked up the price of those cryptocurrencies on that day and compared it to their current price. Overall DataDash has mentioned about 80 projects on his channel, including Bitcoin, Ethereum, Dash, and Monero. For almost all of them, he showed his viewers a good in-depth fundamental analysis covering what I mentioned above, sometimes even accompanied by interviews of key personals related to that project.
Here are the results.
Out of those 80 he mentioned, there are at least 14 projects that were reviewed on his channel and are completely dead. By dead, I mean projects are no longer trading anywhere or have a trading volume of even less than $2000. These include Mysterium, Substratum, Patientory, Firstblood, Regalcoin, and many others. That is roughly an 18% death rate even after extensive research.
Out of remaining, there are at least 50 projects that are below the price as compared to the price on the day of mention on his channel.
Now I know not everyone would have gotten onto an exchange and bought the mentioned coin at market-buy. But there had to be some kind of comparison matrix and I have chosen the price on that day to be the standard.
This means that in the last 2 and a half years if you did a long-term investment in cryptocurrency based on fundamentals, team, whitepapers, interviews, and other things that normally constitute good research, you would have lost a part of your capital 80% of the times. Or you can say that 4 out of 5 investments would have resulted in a loss. This loss would range from 55%-90%. An average loss of 70% would have incurred on the capital.
Some of these coins were mentioned in 2017, some in 2018, and some in 2019. You may argue that the market was bearish for the past few years but then what does a long-term investment mean if the investment can’t even survive 2 years let alone 10? Basically, it is very difficult to call something a “long-term investment” in the world of cryptocurrencies.
That leaves us with 15 projects that are currently above the price since the day they were mentioned. They include Ren, Enjin, Ontology, Unibright, Kyber Network, Icon, Cardano, and many other well-known names. And the gains in the range from 20% to 85% with an average profit of 56%.
13 out of these 15 would have given you a profit somewhere between 20% — 100%. Only 2 projects did extremely well. Chainlink did a 14x in price whereas Binance Coin (BNB) did 12x since the time these were mentioned on the channel.
However, be really cautious in investing in a project just because it has done well in the past.
Now here is the summary. Assume that every time DataDash mentioned a cryptocurrency coin or token on his channel, you went out and bought $100 worth of it. There were about 80 projects mentioned on his channel so your investment would have been $8000.
Taking all the losses and dead projects into account, you would still have about $7418 with only a 7.2% net loss.
Is it good or bad? You can decide yourself. But also ask yourself how risky blind following is.
Finally, to wrap up my thoughts here is some advice from me:
- Do not buy cryptocurrency as a long-term investment. This goes for 99% of the projects out there.
- Make your own list of minimum requirements for buying any coin/token. A review by someone credible should only be one checkbox on that list.
- Fundamental analysis will only tell you which cryptocurrency is better than the others. Do not buy as soon as you find out about the talk of the town. Technical analysis tells you when to buy.
- Learn the general concepts of technical analysis, moving averages, MACD, at least a couple of indicators that you understand fully. You are risking a lot if you know zero about technical analysis. A single click on one of the indicators can save you the pain of loss in just one second.
- Use Dollar Cost Averaging (DCA).
- Stop-loss is a must. Even if you put a generous stop loss at 30%, it is good to lose 30% than 100% of your capital.
- Never FOMO.
- Increase your knowledge and learn as much as you can.
- If you find the smallest of smallest things that you think are shady, stay away from that cryptocurrency
- Love your money. Think about trading as your business.
Best of luck! Let me know in the comments what you think about this article or if you want me to check some other social media account.
Disclaimer: The information shared is for entertainment. It is not to be taken as an investment advice, financial advice, or a trading advice or an advice to follow anyone for making investment decisions. Please conduct your due diligence before making any investment decisions.
