The 3 Steps To Cryptocurrency Investing
Originally published on Medium, adapted for a personal touch.
Amongst my friends, I am often the go-to person for cryptocurrency advice. I guess I am one of the few who have stuck it out for so long in the market, whereas most of them have either taken profits or are uninterested in the bear market.
I always ask these friends, “If you want to invest in cryptocurrencies for the long term, shouldn’t the bear market present a better opportunity than when the market is all up and bullish?”
As such, I broke down my own crypto investing and trading experience into a map of the “customer journey” and attempt to understand why my friends have lost interest.
Step 1: Learn It
The crazy rally of 2017 has exposed people from all walks of life to cryptocurrencies. Everyone has an idea of Bitcoin as digital money, non-government controlled, insane returns, created by mining, but how many of them understand and consider the implications of decentralisation? Do they see mining as a coin creation process or a consensus mechanism? Who actually considers the token economics and the type of stakeholders in the market before sinking down their money?
That is not to say that most investors entered blindly. I am sure that they have read up on, or attempted to understand the extremely complicated topics. Then, with a rough understanding and a sense of urgency as the bull market takes off, that is when they are sold.
And I think that is where most people are stuck. If you do not fully grasp the potential of decentralisation, you will most likely lose interest when your investment fails to pay off.
Step 2: Pick It
There was a period where I went through 2 to 3 Whitepapers every week, trying to learn about the different applications of blockchain and cryptocurrencies. Two months in, I found a repeated pattern amongst the different cryptocurrencies that I read about.
So I started listing the different cryptocurrencies out on a paper, putting them into tables and drawing lines to try to make sense of the mess. That was when I wrote A Better Taxonomy For Cryptocurrencies, which is still a hit today, and later inspired me to expand it into my book, Rolling In Crypto.
Anyway, I learnt to distill amongst the few thousand different coins and ICO projects. Yes, I acknowledge that participating in the early rounds of some ICOs and exiting when allowed can turn a quick profit, but that was not something I believed in or looked into.
I was an advocate for long-term investing. Until I learnt the next step.
Step 3: Time It
One of the mistakes I made was not having an exit strategy planned. On hindsight, everyone will know that they should have exited at the peak of the market in 2017. But there and then, would you have thought that the bear market would end? The slight dip in January could have propelled the crypto market to greater highs, and that was what I thought.
Nonetheless, I felt that I needed to learn technical analysis. And with some basic technical skills, I am even more aware of the importance of taking profits and reducing your positions as part of managing your risk.
If you are looking to invest for the long-term, a simple Dollar Cost Average strategy will suffice. However, if you want to make it profitable in the short to mid-term, you have to know why the market is moving in a way, and make educated guesses of where it is heading next.
Personally, I find distributed ledger technology exciting. There is so much room for growth, and there is so much you can learn from it.
When I hit Step 3, I saw a new light. The market is always changing so a strategy that works now may not work a couple of months later. That is what excites me the most – to constantly adapt to the different situations you are thrown in – much like the uncertainties of life.
Learn the steps well, and move up the steps slowly. The market will always be here. I look forward to what Step 3 holds, and perhaps even a Step 4,