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Bitcoin Investor Lost on Every Trade. Here’s Why

As bitcoin dropped by 50% late Tuesday afternoon, my phone rang. It was my friend Jordan, and I shook my head as I took his call. I knew he was wondering if he should sell again.

It’s the big mistake he keeps making … and he hasn’t learned from it yet.

In 2017, he bought bitcoin at $1,250, $2,800, $7,500 and $14,000. That’s an average cost of $6,387, or about half of bitcoin’s current price of $12,000.

But here’s the crazy part: He’s down on his bitcoin investments!

That’s right — even with an average cost significantly below bitcoin’s current price, Jordan still managed to lose money … in an asset that skyrocketed 1,400% last year.

Now, you might be wondering how this is possible.

It’s possible because he lets volatility shake him out of his positions. He gets out at exactly the wrong times, when if he just listened to the advice I’m about to tell you today …. he’d be up big in the past year.

The Ups and Downs of Bitcoin

Most people don’t realize that not sticking to a plan has eaten into many crypto investors’ profits.

Any casual observer would think investors are raking it in! All they had to do was buy some bitcoin at any point last year, hold on to it and cash out.

However, if you look past the staggering returns, you’ll notice that bitcoin is one of the most volatile assets in history.

Take a look at some of these spectacular bitcoin peak-to-trough drawdowns over the past year:

January 2018: -71%.

December: -42%.

November: -28%.

September: -39%.

July: -36%.

May: -25%.

March: -24%.

January 2017: -35%

One defining characteristic of volatile markets is their tendency to shake out the weak hands before the next move higher. I outlined this concept last summer in an article for Investopedia titled: “Bitcoin’s Bloody Sunday Has Weeded Out the Weaklings.”

And that’s what’s causing some bitcoin investors, like Jordan, to miss out on massive profits.

Jordan kept repeating the same mistake: He would chase the market after a bullish run and then dump his holdings a few weeks later when the reversal occurred.

This pattern repeated itself more than a few times last year, and typically began after (insert Asian country here) threatened to shut down crypto markets or restrict citizens’ access.

The financial news media would rush to publish bitcoin obituaries, and bears who had been short since $1,000 would triumphantly declare victory. The latest wave of crypto investors would head for the exits.

Seasoned crypto traders have a name for this condition — it’s called “FUD”: fear, uncertainty and doubt.

In each of these instances, bitcoin resurrected, buyers returned and those minus-30% sell-offs were followed by rallies of 76%, 237%, 183%, 165% and 152%.

After selling into the latest panic, bitcoin investors like Jordan would then feel their emotional pendulum swing from the fear of losing to the fear of missing out, as prices became a simple manifestation of greed and fear. They would then jump right back in.

Here Come the Millennials

All investments mirror the behaviors of their buyers and sellers.

Speculative investments are more volatile partly because they attract risk-seeking individuals. On the other hand, conservative investments exhibit lower volatility due to the prevalence of buy-and-holders.

That’s part of why cryptos are so volatile.

Now, while some investors may sell too early, causing them to lose out on profits, there’s also the opposite problem.

A few years ago, a Coinbase study found that nearly 60% of users were under the age of 34. Suffice it to say, millennials have a higher risk tolerance than older investors with children trying to save for retirement.

It is not surprising that the crypto markets are dominated by millennials. Entering these markets requires the technical prowess of a generation raised on information technology, and a willingness to trust the digital mechanics that power cryptocurrencies.

For many of the newcomers, this is their first foray into investing. They skipped the “boring” 20%-plus returns of the stock market last year and went straight for the crypto. None of them have faced a true bear market, as every recent dip has been met with eager dip buyers.

However, most of them, like Jordan, have no plan of attack. Everyone knows how to buy; nobody knows how, or when, to sell. Millennials have a penchant for risk, but this can also be a curse when they avoid selling when they should.

It is no wonder that investors keep losing money on an asset class that rose 5,000% in two years.

If You Fail to Prepare, Then You Are Prepared to Fail

One of the greatest investors of all time, George Soros, had no qualms with buying bubbles. He famously said that when he saw a bubble forming, he would rush in to buy, “adding fuel to the fire.” Soros also knew when, and how, to sell.

The biggest mistake by investors is not having a strategy — and giving into emotion. Every trade must have an entry point, an exit point and a stop-loss to keep you on track.

Booking profits might limit your gains, but stop-losses will also prevent total losses. As a rule of thumb, I always leave an open “good ‘til canceled” limit order to sell 25% of my position at higher prices. This forces me to take a profit and reduces my initial cost basis.

If you are consistently booking profits, you will be left with a better mindset when the panic selling happens.

Helping everyday traders capitalize on crypto volatility with disciplined, mindful trades is why I’m excited to work with Banyan Hill on an upcoming service. There continues to be huge gains to be made in this market.

Regards,

Ian King

Editor, Banyan Hill Publishing

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Here Come the Cryptocorns

In recent years, venture capitalists have used the term “unicorn” to describe the statistical rarity of a startup that’s achieved a $1 billion valuation.

However, these “mythical” startups are no longer uncommon.

Globally, there are now 276 companies with the billion-dollar unicorn designation. Some of them are already household names, like Uber, Airbnb, Pinterest and Dropbox.

Collectively these startup unicorns carry a $967 billion market valuation on an aggregate investment of $200 billion.

That’s nearly a 400% return in just a few years.

But none of these returns have accrued into the brokerage accounts of the everyday investor. Rather, these investments are restricted to venture capitalists and high-net-worth investors.

Instead, everyday investors have found themselves “holding the bag” when once-hot startups like Snapchat and Blue Apron finally made their way to the public markets, and proceeded to fall 50% and 65% from their opening prices.

It’s no surprise that investors are anxiously clamoring to get in on the ground floor of the next moonshot.

Enter the Cryptocorn…

Bitcoin may be the largest and most discussed crypto. However, it’s only the first application of blockchain technology.

While bitcoin posted a 1,485% gain in the past year, the decentralized platform for smart contracts known as Ethereum skyrocketed 12,822% in that same time period. Conceived by then-19-year-old Vitalik Buterin in 2013, the Ethereum platform has underlied the creation of 1,000 new blockchain projects.

As entrepreneurs find new ways to apply blockchain’s innovative technology to solve real-world problems, these ideas are being met with waves of new capital from nontraditional investors.

Current investor demand for these projects is drastically outstripping the supply of companies, and these are the necessary ingredients for a financial mania.

The speculation that investors can get in on the ground floor of the “next big thing” is leading to price rises that markets have never witnessed in history.

This is unleashing a new type of startup unicorn: the “cryptocorn.”

At last glance, there are 41 blockchain projects valued at over $1 billion. A year ago, bitcoin stood alone in the cryptocorn pen.

In the same time period, bitcoin’s crypto market share has dropped from 90% to 33% as the likes of Ethereum, Ripple, Litecoin and Bitcoin Cash begin to rival the crypto throne.

A Digital Gold Rush for the Ages

This new ecosystem of alternative cryptocurrencies, known as “altcoins,” are the hottest ticket in town.

Altcoins arrived on the scene via a hot, new funding mechanism called initial coin offerings (ICOs), which are like a hybrid of venture capital and initial public offerings for stocks.

According to CoinMarketCap.com, the number of altcoins outstanding swelled from 64 in early 2014 to 1,398 today. In the past year alone, the total market capitalization of altcoinsgrew 25,000%, from $2.2 billion to over $500 billion.

In most of these crowdfunding campaigns, investors exchange either bitcoin or Ethereum for the new coins, which then can be used within the specific altcoin network for purposes such as trading storage space, renting computational power or anonymous transactions.

The allure of ICOs is that investors are able to access early-stage companies with public market liquidity. Up until the past few years, investors had no access to early stage tech companies, which is where most of the growth occurred, leaving the biggest gains to the venture capitalists able to invest in earlier rounds.

The flood of new investors has caused three of the most popular exchanges — Bitfinex, Bittrex and Binance — to temporarily halt new users. These halts were issued as China-based exchange Binance reported that it was opening 250,000 new accounts a day.

Bitfinex has already announced that new accounts can be registered on January 15, as this move is temporary until these exchanges can add infrastructure upgrades. However, for crypto investors unable to wait, there are accounts available for purchase on eBay ranging from $200 to $10,000.

Cryptomania

Like the dot-com bubble of the late 1990s, the current altcoin market likely contains the crypto versions of Google and Amazon, but it’s also likely to contain a lot more duds a la Webvan and Pets.com.

The recent surge has produced “blockchain for dentists” (Dentacoin) and “blockchain for Christians” (Jesus Coin), which “boasts the unique advantage of providing global access to Jesus that’s safer and faster than ever before.”

While this mania will likely go further than rational investors anticipate, the end of it will likely coincide with an increased demand for Jesus Coin.

Regards,

Ian King

Editor, Banyan Hill Publishing

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Bitcoin: The End of the Beginning

Bitcoin surged a mind-blowing 1,500% last year, leading many experts to call for “the end of bitcoin.”

But this rally isn’t over yet.

This isn’t the end; it’s only the end of the beginning for cryptocurrency markets.

Everyone has heard of bitcoin. But few people own it. Even fewer understand it.

That’s going to change in 2018.

Author Malcolm Gladwell defines “the tipping point” as “the moment of critical mass, the threshold, the boiling point” in which “ideas and products and messages and behaviors spread like viruses.”

Crypto assets reached this tipping point in 2017.

Bellwether crypto bitcoin surged nearly 1,500%, and total market cap of the crypto space surged from $18 billion at the start of the year to over $600 billion.

But while bitcoin put in a stellar year, that doesn’t mean Main Street investors have missed the boat yet. 2018 makes the perfect time to jump into cryptocurrencies…

The Crypto Game Has Changed

In just nine years, crypto assets have ballooned from a tiny project among libertarian-minded cryptography experts to a global phenomenon.

Corporations and governments are hiring blockchain experts to figure out how to integrate this new technology into their existing businesses.

Expectations for the future of this new asset class range from the Holy Grail that replaces all middlemen on transactions (including banks and governments) to the world’s greatest Ponzi scheme orchestrated by state-sponsored actors in North Korea.

However, I believe investing in bitcoin in 2018 is actually a safer bet than it was two years ago. While the same astronomical returns might not repeat, the risk of total loss has been dramatically reduced.

Easier Trading

One of the keys to opening up growth in this sector is simplifying access to new investors. Apps such as Coinbase make buying and selling bitcoin much easier than before.

Coinbase replaced YouTube as the most downloaded app on iTunes. With a few swipes and taps, investors can now swap their dollars for bitcoin, Ethereum, Bitcoin Cash and Litecoin. You can buy bitcoin from the comfort of your couch or while watching your 8-year-old’s soccer game. The market is open 24/7/365.

Globally, there are roughly 30 million bitcoin wallets open. However, many crypto investors own more than a few, so the number of people who actually own bitcoin is likely closer to 10 million.

While there has been rampant growth in wallets in recent months, investors haven’t emptied out their savings and brokerage accounts into the crypto universe. Out of those 30 million wallets, only 3 million contain more than $1,000 in bitcoin, and only 1 million contain more than $10,000 in bitcoin.

Keep in mind the total crypto market cap at $800 billion is just 0.3% of the $215 trillion in total assets globally. There is still ample room for this market to grow as more investors open accounts.

No speculative mania has ever been easier for everyone in the world to participate in than the crypto markets, yet this would qualify as the most underowned, concentrated bubble in history.

Beating Wall Street

Main Street investors have been watching from the sidelines for too many great opportunities while Wall Street and the investing elite have prospered.

Take the case of Facebook.

While shares of Facebook Inc. (Nasdaq: FB) have risen 355% since its 2012 initial public offering (IPO), early-stage investors were sitting on gains of up to 60,000% before reaching public hands.

Uber now commands a $48 billion private market valuation. This is 12,000 times higher than its original valuation of $4 million.

But not one cent of this increase in value has reached the public. Rather, all the gains have accrued to Silicon Valley insiders and large institutions.

This is not the same with crypto, where everyone has an equal shot of finding the next Uber, Amazon or Google.

Wall Street is just now starting to get involved. The Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE) launched bitcoin futures in December, which helps the markets function. Goldman Sachs is launching an institutional crypto trading desk.

This all signals that cryptocurrencies are here to stay, and there is still plenty of money waiting on the sidelines for those who jump in now.

2018 and Beyond

In the last few months, bitcoin and the rest of the crypto world went mainstream. The barriers to entry are gone, and savvy investors now see the potential of this new investment class.

And since institutional money is still en route, this market — and the gains — will only increase.

That’s why I say this marks the end of the beginning. The question is no longer whether bitcoin will be essential to a diversified portfolio. It is now a matter of what percentage you want to own, and what other crypto assets are your best bets.

That’s what I plan to help you with in 2018 and beyond.

Editor’s Note: Do you have any experience buying and selling bitcoin or other cryptocurrencies? What kind of profits have you made? And do you have any questions about cryptocurrencies? If so, please leave a comment below sharing your stories or questions.

Regards,

Ian King Editor, Banyan Hill Publishing