A 2x is Nothing

I recently made a post on the bitcoin pub (https://thebitcoin.pub) — which served as inspiration for writing this article. With my original intent on this being a forum reply — it quickly expanded into something more as I elaborated on my original intent in the post, evolving into a bit of background on my investment (crypto) journey, what it has taught me, and a bit of knowledge I would like to impart. If I enlighten even a couple minds during this article, my invested time spent creating it would have been worth it 2x.

As I write this, many in the investment-side of the crypto space seem to have given up hope. Seemingly every day I log into twitter, another post is re-tweeted about an individual voicing their distrust, disgust, and above all else stating their complete dismissal and discharge from engaging in crypto as an investment vehicle as a whole. The price of BTC is plunging again, from the mid $5.5k range down to $5k, and again, seemingly every day a new lower-low is being projected. $3k is now the new ‘projected target’, some have even attempted to pre-empt others, issuing a $2k or $1k prediction for the ultimate bottom.

But first, before we dive in, let me clarify: A 2x is something. Especially in the traditional investing world. A 2x is a 100% gain. That is a whole 2-times your initial starting capital. So, yes, 2x is a lot. But…hold on a second, this is a crypto article, and a 2x, as we’ll get into later, is not a whole lot in the grand scheme of things. Bringing a young crypto market into the picture, in fact, a 2x is almost inconsequential, it will come and it will go, it is Nothing.

Framing another way, a 2x should be nothing to you fundamentally, emotionally when investing in the crypto-market with view to the long-term.

You know, it’s funny

You know, it’s funny. On this cold Sunday night as I reflect on my career in investing. I initially started to look towards investing in the depths of 2008–2009, at the bottom of the financial collapse; it is here where I signed up for my first brokerage account, bought my first stock. It was the purchase of Bank of America stock at ~$3, which I then built up a fairly solid portfolio over-time, iterating my approach a bit as time went along, diversifying where I saw value and applying the classical tenets of traditional investing where I saw fit (diversification, risk management, profit-taking, technical and fundamental analysis considerations).

I had winners and losers along the way, but all the while, I kept my vision on the long-term — knowing that eventually the market would re-price undervalued assets. This is the traditional approach taken by many successful value and long-term investors. As the years went by and BAC stock in-particular began to recover, going from $3, to $5, eventually to $7–8, and then making the jump back into the teens, this mindset paid off. My conviction remained through the ebbs and flows, I never once had a doubt in my mind, and I knew eventually the market would realize value where it once deemed none to be.

In 2011 I adopted more advanced trading vehicles, ETNs, leveraged tools, contracts and commodities. I read through the great books Market Wizards by Schwager, and Trading in the Zone by Douglas. Through all of this, I realized one key takeaway: the only true advantage one really has is their own realization of their place in the larger machine, a machine running on a timeclock, operating on the tenets of human fear and greed.

This growth period lead me to my discovery of the crypto space. Coworkers began setting up miners, and members of the ‘StockTwits’ platform began mention of a strange new investment vehicle called ‘ETH’, which had 8x’ed in a matter of weeks, I was convinced. My best ‘trades’ if you will since my foray into crypto have been buying NEO at $5-$7 in the summer of 2017, and riding it until December, where I subsequently sold it into BTC at a $100+ average, which I then used to purchase ICX on exchange listing day at a little over a dollar. I then took my position in ICX, saw it 10x to its ATH of over $12. ICX now sits at a remarkable -97% off its ATH (as I write this, $0.40).

Extreme fluctuations in price such as this have a way of showing you that a 2x, in the grand scheme of things is nothing. If you would have held ICX at $12, down to $.40, your portfolio would have experienced a net negative 30x price move. Phrased in another way, that means it would take you 3 10x’s, 2 15x’s, or a solid 30–40x (with tax considerations) just to achieve break-even again. A 2x in these contexts is absolutely inconsequential, the only thing that would help lessen the pain is your belief, your raw unshakeable conviction that in the long term, there will come another bull-market, and crypto — with all of its benefits to universal money, and use-cases yet unforeseen, will be invaluable to the society, networks, and apps of the future.

Where we stand today — A potential floor, or the end?

If you’ve ever had the urge to go back in time, maybe you have had the urge to entertain a bout of sudden nostalgia. You could surf the web of past using various means (wayback machine, internet archives), or even search for old youtube videos. The beauty of the internet is that it is a perfect device for sentiment preservation. Human psychology is frozen in time, which can then be subsequently resurrected for future curious minds to probe. If you scour the web for videos around the time of the last great traditional market’s financial collapse from around 2008, you see the emotions pouring out of the individuals affected. Sheer unsettlement might describe the mindstate of the time. This feeling is at the complete opposite end of the feeling at the top of any bull-market, it can best be succinctly described in one word: Fear.

If fear is the descriptive term used to describe the bottoming of a bear-market, then Greed is surely the best Ying to its Yang — and perfectly describes the ultimate ascent and topping out of any bull-market that has taken place in human history. Learn to recognize these distinct human emotions in any market tied to ‘value’, and you will quickly begin to realize that all financial markets operate strikingly similarly. The ‘value’ being traded in the market matters much less than the players involved and their beliefs, behaviors, and ultimate actions. The manipulators operating in financial markets, tugging on these emotional strings are also noteworthy. If trustworthy and influential players tell you that now is a good time to buy, your average or casual market participant is going to feel much less anxiety continually adding to their 401k every month — This, regardless of the fact that it may be the worst time to do so (and in fact, it typically is).

But humans will be humans, and just like anything in nature, can be described by their very recognizable patterns; We all have a tendency, by virtue of being born with human brains, to ascribe more value to recent occurrences (see recency bias), with less value given to past occurrences, and hold more (sometimes unfounded) trust in those whom we have deemed to be somehow more qualified / intelligent than ourselves.

Pulling on emotional strings

Fear of the unknown leads to increased selling pressure within a shorter time duration in market terms (this is why market drops are more precipitous than market upswings) — see herd mentality. The common mindset is that: “Everyone else is selling, yet I am still holding; so I must not be privy to some information — I better sell before it’s too late!”.

Most people struggle to take the longer-term viewpoint. This is also true of life in-general, and in financial terms, can describe why many middle-aged and older individuals, working in great economies, with great jobs, tend to lack in the areas of retirement and investment planning for their ultimate older age. Many people lack the foresight, the ability to abstractly construct the world of tomorrow in their minds eye during the present time. This is a skill that requires the removal of the current days immediate troubles in order to effectively accomplish. In financial markets, this phenomena of recency is magnified; where money is closely tied to emotions, and so a person’s emotional bond with their finances is in full-view and display during every market cycle.

Cycles clearly show human emotion playing out time and time again: The characteristics are apparent:

• Bear markets are severe
• Bull-markets are unexpected
• People tend to sell the bottom out of fear, expecting the market to go lower (possibly never to recover) | FEAR
• People tend to buy the top, expecting the market to go ever-higher (possibly to never slow-down) | GREED

Shifting to Crypto, If a third party observer, seasoned in the realm of traditional stock investing was given an anonymous chart depicting the price-action of bitcoin to analyse, they would ultimately come to one conclusion: It is like nothing they have ever analyzed before.

Bitcoin, and crypto in general is like traditional financial market investing on steroids. The price action is based on the same tenants as before (fear and greed), however, it is as if someone poured gasoline fluid over the entire space, lit it on fire, and made them play out their investment thesis in the short time it would take for them to cease living. With the quick market cycles inherent in crypto, you would think it would be easy for many participants playing the game to detach, to see the bigger picture of the cycles playing out: a bit like watching the sun rise and fall before your eyes. It’s easier to anticipate due to its frequency, yet people still seem to struggle to grasp it, and fall victim to greed and fear time and time again, and even worse, in this regard, the only difference is that they seemingly experience these emotions at a faster clip.

Dissecting Post

Digging into the original post I made on the bitcoin pub, it was originally intended to be a simple thought that just sort of came to my mind during a long weekend night:

Let’s dissect a few bits of this post further:

“As prices get lower,

People revise their price targets lower.”

Does this sound familiar? As prices get lower, people experience more fear, and thus they begin to sell > People revise their price targets lower. When you instead should rationally be more bullish, giving due consideration that in the long term view, prices will recover, folks instead tend to take the recency bias, giving precedence and more weighted credence to what has happened recently, what is fresh in mind; anticipating and expecting more of the same continued behavior to occur, and thus they expect more downside, sometimes even for a never-to-recover scenario (as if somehow during the market downturn, the market has been broken).

It is also noteworthy to consider the emotional imprints that severe market corrections have on some vulnerable individuals — remembering this feeling of helplessness, they vow to never feel this way again: “I will make sure to take profits next time” or “I will only invest what I’m willing to lose” are the common phrases. Yes, these are important traits to have when investing in any market — but they have their place. In the context and consideration of the long-term view, is it truly the wisest choice, in an 80%+ down-market to completely withdraw your exposure, taking away your chance for upside? You have effectively held the top through the bottom, and sold very close to the ultimate bottom — the complete opposite of what we want to accomplish.

“Whether you buy at $3k or $6k,

Will this matter to you when the next bull-run comes,”

Surely your entry-point in any investment matters, and you should always try to achieve the most upside from your initial entry (if taking a long), and execute sound risk-management practices along the way. But, if we take into consideration the beast that is the crypto-market, does the initial entry really matter as much as we may think it does in the end?

Case in point:

If you were to invest $10k initial capital at $3,000 BTC into altcoins (if this were to be the ultimate bottoming price bitcoin were to achieve in this bear-market), and then subsequently experience a 30x: Effectively, you now have $300k in capital. Great. That is a fantastic return. However, If you were an ultra-bull, and thought $6,000 BTC was the ultimate floor for BTC, you may only experience a paltry 15x with your alts.

OK — so now your portfolio is $150k vs. $300k. That is an entire $150k you have missed out on, that is a LOT of money. But in the long-run, is it really?

In the long-run, you may experience another bear-market, where, if you were to put that $150k in a low-cap altcoin investment, it could lose 30x of its ATH value; effectively turning your $150k into $5k. In this situation, a 2x from here gets you back to $10k — not really a great consolation for the extreme volatility you’ve just experienced. Multiples will come and go in crypto investing, but the ultimate factor in your long-term success will not come from a single 2x, not even a 4 or 6x — but to your continued belief in your investments, your conviction to your original market thesis, or the reason for initially initiating your engagement in the investment in the first place.

Takeaway

Throughout all these experiences, I have cataloged some top advices:

• It’s better to focus on the long-term, over the short
• You can play in the short-term space while remaining focused on the long-term, as long as and as well as you don’t let it cloud your judgement
• Remember your original intent and belief, this is more important than the cycle, even your initial entry in the long-run
• Humans are the ultimate market participators, greed and fear are their drivers
• Your Long-Term vision, Conviction in your own research and ultimate decisions are more valuable than any multiplier you experience in any market
• Take profits, but don’t allow price action to change your fundamental beliefs
• Make a strategy and stick to it, but don’t become inflexible in your approach
• Don’t let Fear take your Future
• Don’t let Greed take your Goals

A 2x is a lot. It’s a 100% gain from initial entry — but when you really put it into perspective, in the grand scheme of things, a 2x is Nothing.

(I am not a financial advisor, and this is not financial advice.)

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KG