Some thoughts a month after going back to trading cryptocurrencies
TLDR: A few weeks ago, I decided to re-immerse in weekend trading of cryptocurrencies, Bitcoin and altcoins. I share my thoughts about how fun it is; varying degrees of FOMO; and some extra reading you should do if you’re considering investing.
I signed up to Coinbase back in 2015, but was not very active. I restarted trading Bitcoin after a Blockchain Bitcoin meetup at our WeWork office. To learn about Bitcoin, you need to trade it. Like many things in life, there’s a limit to you can learn about something from just ‘reading’ about it; you must do it. If you’re into software, you have to learn coding to really get it; you can’t really understand data if you don’t dabble in maths, statistics, SQL, R or Python. So, trading cryptocurrencies was the quickest way to learn. And I learnt lots from going through the massive hassle of setting up my accounts and trading BTC and LTC with a bunch of exchanges.
More fun than Vegas: It happened that I got back on the Bitcoin wagon when it was trading at $11,000, before it jumped later that week to $16,000. The ability to make 50% return in a week, compared to the paltry 1–2% annual return on savings is quite enticing. I hate gambling at a casino, but with crypto I don’t feel the same inhibition or stomach churns that I could get in Vegas. Perhaps had my first investment lost money, I wouldn’t have been as keen to continue investing. Luckily, that wasn’t the case. It’s quite a bit of a game; now, I stopped playing computer and console games some ten years ago, and playing the crypto markets reminds me a lot of the thrill of playing computer gaming, albeit with a financial risk and rewards.
Many flavours of FOMO: Trading on evenings and weekends was a great exercise in psychology. I identified three unique feelings of FOMO, rating from the least to the most painful. 1) FOMO of “not putting in enough”: you see the market pump and jump, and start calculating how much more money you’d have made if you put 10x more a few days ago. It’s not too painful, because you’re still taking a good profit, though. 2) FOMO of “I don’t have enough money”: you see the market drop 10% or more, you want to buy more, but you don’t have enough cash because it takes days to transfer fiat currencies into your exchange account. It’s painful but not too much, because you can blame Coinbase, Bank of America or someone else but you. 3) FOMO of “I should have sold more”. You sell some but not all the holding. The market then drops below your buying point and you feel you should have sold the whole lot to buy it lower. It’s painful, but you take solace in the fact that you still made a bit of money when you sold, and in the hope that it will pump again. 4) FOMO of “I sold way too early/I wasn’t greedy enough”. By far the most painful. You sold most of the holding for say 5% or 10% gain, only to see the market pumping to 10% or 50%. You feel you should have just left the money untouched. Will it run up, never to go down again and you’ll miss the entire pump? By far the most painful FOMO.
Bitcoin, Brexit, Trump, Fake-News: I can’t help but feeling that crypto is the logical next chapter in the annals of our modern 21st century world of Brexit, Trump, fake news, mega-shifts-in-world-power and of millennials-quickly-replacing-baby boomers. There’s a massive lash-back against so much that we considered for granted just a few years ago. It’s quite conceivable that people would want to safeguard 1–2% of their wealth in an asset that cannot be touched by government or federal banks, and that can be accessed from anywhere easily. Purchasing a Leonardo Da Vinci painting for $450m is one way to buy an asset you feel won’t lose value but it’s anything but liquid; buying Bitcoin is a somewhat easier way (in both cases the value of the items purchased relies solely on the value attributed to it by the markets). I see Bitcoin’s main attribute as becoming a decentralized asset class that is not subject to the inflationary pressures that fiat currencies suffer will suffer from, in a world where of trillion-dollar central banks debts. For many of its hodlers, Bitcoin really is the millennial version of gold. But unlike gold, it seems like a much more appropriate anti-fragile anti-Black Swan hedge option. John Pfeffer has a fantastic write-up about the long term view of investing in cryptocurrencies, that is well worth its 26 pages. You should read it if you’re considering investing in BTC, ETH or anything else.
It’s a logical investment in my portfolio: Few weeks in, I consider my crypto portfolio as a high risk-reward investment, but not significantly more so than that of my angel investments or real-estate portfolio. It’s less than 2% of my net wealth and within my personal risk tolerance. When I invest in start-ups, I end up writing a check to a company that may fail, return 1X or if I am extremely lucky, return more than 2X but only within 5–10 years. With crypto-currencies, playing the short-term, I may have similar odds, but within a much shorter time-frame. Is it much more of a gamble compared with angel investing? I’m not sure. My property investments earn a sub 10% return; with crypto-currencies I aim to exceed this rate of return within a week to a month, depending on the level of risk and margin-trading. When I recoup the principal within 8 weeks, it makes me feel comfortable with the risk-reward level. All in all, I hope crypto-currencies would generate a better return than my other high-risk investments. And if it doesn’t, it was still a significantly more fun activity on weekends than going to Vegas or binge-watching Netflix.
The Information contained in or provided from or through this blog is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this website without undertaking independent due diligence and consultation with a professional broker or financial advisory. The trading of Bitcoins, alternative cryptocurrencies has potential rewards, and it also has potential risks involved. Trading may not be suitable for all people. Anyone wishing to invest should seek his or her own independent financial or professional advice.