None of this article should be taken as financial advice and is opinion based only, always do your own research. That being said, let's proceed. This article has been written in the capacity of what I am doing personally, my thinking, and how I am being careful not to get sucked into losing lots of cash. Some of the strategies employed in this article are what is behind the thinking of Crypto Statto. January 2024, we are building a lot of reports and enhancements behind the scenes and it is hoped these are the reports that will help our customers navigate the very choppy crypto market.
Trading in a bull market
We are now at the start of January 2024 and we are off the back of Bitcoin having done around 110% gain just over the last year, and many alts showing very strong recovery from what has been an extended bear run. Many alts held personally are still 95% off their ATH.
The one thing we know is that crypto influencers suck retail into the market. Whether it is genuine excitement or bullish technicals, many retailers will end up providing the exit liquidity for the crypto influencers. Some call them scammers, but it is important to realise that almost everyone wants the crypto market to explode and sadly there is an abundance of misplaced optimism about. The minute Bitcoin does more than 2% in a day, there is no shortage of people shouting to expect $400k next year.
Where are you in your crypto journey?
If you are a newbie, you may be tempted to throw £20k in because many influencers are touting £300k Bitcoin. Let's say you put in £20k at £40k per Btc. That would become £150k if it reached £300k per BTC. The challenge, nobody knows where the coins are definitely going and most people are going to exit way before £300k per BTC.
The way people lose all their money
The saddest thing that I have heard happen - somebody hears an asset is going to explode and they throw their life savings into it. This is a genuine true story, a friend's colleague that worked in finance bought Bitcoin, putting £70k in. The price crashed, they sold, the price rallied, they bought, it dropped, they panic sold, it went up, they panic bought, it crashed, they panic sold, and lost all their money.
This can get way worse if you are applying leverage and are on the hook for the margin. There have been tragic tales of people committing suicide due to unbelievable losses.
It is not just about understanding the market but understanding what happens to many of the people that get involved in it.
Remember, all markets lose for many participants. Nothing is more tiresome than hearing FUD about cryptocurrency traders losing all their money when knowing that all markets can devastate people's wealth.
- Companies go bankrupt
- Share prices can collapse
- Properties can require major repairs or be unrentable
- Governments will mess up long term investment plans. How many left cash ISAs after the financial crash?
- Costs can stop profits
- Staying in an asset - Fiat could see its value debased due to inflation
In this market, any asset that capital is allocated to could fall in value. It is important not to get shaken out of any market unless you truly want to.
You don't need to put lots of money into cryptocurrency
We will be adding more analytics, charts and data to Crypto Statto to validate our claims in due course, but will explain how we have gained more coins
Four main principles of trading
- Pick a good entry
- Accumulate an asset
- Pick a good exit
Why would you keep putting more money into a highly volatile asset when you can gain more of that asset through its implied volatility?
Defining a personal road map for the assets future
Nobody can say with certainty where the market will end up. My specific future is that the cryptocurrency space will mature. Certainly, government CBDCs and legislation will do their utmost to regulate and control cryptocurrency but it is because of the sophistication of cryptocurrencies technology - its most salient feature, that will help it offer value in the end. AI tech will be more about creating applications on top of block chains than to create new ones. Block chains are paid for by their durability, one could propose.
For that reason, based upon my assessment on where cryptocurrency is heading, my personal plan is to accumulate as much as possible for as little money as possible. Definitely, taking profits is essential, but when that happens, mostly it is about gaining more coins on the dips.
One potential future for bitcoin will be as digital real estate, that it can be used as collateral on many assets. Perhaps governments and local authorities will borrow collateral rather than seize taxes for citizens daring to own property. We seem to be in an era of governments destroying digital privacy, but different economic systems will emerge. In terms of cashing out of cryptocurrencies, you would probably own a home, some physical assets that can represent hard money, and that may be all. Income from lending cryptocurrency is one way to maintain cash flow.
With that vision in mind, which could be entirely wrong, but seems as if it has to occur, we should look for trading strategies suitable for our vision.
Perhaps you think it is a fad, who knows? You must pick your own vision of the crypto future, we shouldn't base it on what anybody else says.
How I trade cryptocurrency
We should not consider it trading in a traditional sense. We simply start to accumulate different coins to then buy and sell between them. One advantage of this is that you may reduce tax liability depending upon your country through selling at losses during certain market cycles.
Using limit orders, and choice monitoring of asset values to identify opportunities
We often find that on a daily basis, there are big risers and fallers within the thousands of cryptocurrencies. A lot of the time, we are unlikely to predict these moves. We therefore have to pick coins that we think have long term potential, or at the very least enough potential to make waves. We then set up swing trades between these coins and larger cap coins.
Additionally, because it can be hard to spot the next big move, we can often pick up on mean reversion opportunities. Not one to short nakedly, a coin that gained a lot is likely to fall back. We often find that coins may swing multiple times between the highs and lows of that time interval. Which creates an interesting opportunity.
Imagine we are holding 0.1 BTC, we see that ethereum gained 10% on btc in the last day. We could put in a limit order to buy at a 9% reversion (dip). The chances are if the trade executes, we could put in a sell order at 5%-10% above and it could execute. On this trade alone we may gain 0.01 BTC or so. It would only take ten of these kinds of trades to gain an extra 0.1 BTC. In practice, we wouldn't just be relying upon Ethereum, sometimes when we buy the coins they dip lower, but over time we could see big gains.
I have found that during the current bull run, I have taken out some fiat profit and gained many more coins. We cannot know if alts will ever recover to their ATH in this current bull cycle, perhaps we will need to wait for the next big bull run for some coins. The key point is to keep gaining more coins. Another strategy is to consider moving certain profits into other physical assets.
Should "I buy the dip"?
Let's rephrase that. "Should I take my cash and buy a falling asset when that asset is declining in value?" When we phrase this strategy, it does not sound too appealing. Our question is, which assets can we put small amounts of cash into to then keep buying and selling to accumulate more coins?
Timing your entry could be as simple as having a watchlist of coins and buying those you think will recover. By placing your limit order at a level and amount you are comfortable with, the moment the trade settles a reverse direction limit sell order to accumulate more coins.
Buying the dip is simply a strategy to get Fiat into crypto at a price slightly below the current cryptocurrency market price. It is not my intention to keep dollar cost averaging into an asset, whilst not a terrible idea DCA doesn't attempt to accumulate more coins without having to put more cash in.
Why would you put large amounts physical cash into cryptocurrency?
You may feel it is safer over the long term to have cash in cryptocurrency rather than in fiat or other assets. You are not looking to trade. There may be different treatments by legislation for cryptocurrency versus other assets. Don't quote me, but government cannot get its grubby mitts on crypto for inheritance tax purposes yet.
The Bitcoin as collateral argument
One really important distinction to make is between active cryptocurrency and passive crypto. Active we consider to be on-exchange, passive is off-exchange in a wallet. One of my objectives is to have a certain percentage of passive crypto always. During bull runs, some passive will get sold, but leading up to the bull run highs your passive crypto remains as so. By having an allocation of passive crypto, you are less influenced in swings between your passive cryptocurrency and active cryptocurrency.
An example. There has been ongoing speculation for months concerning one or more Bitcoin ETFs. The price of Bitcoin has risen significantly and pulled up many alts. In the last few days, many alts have sold off potentially to free up cash to buy more BTC. On the 10th January, 2023, the SEC announced they had allowed a Bitcoin ETFs to then say it was a false announcement and their servers had been hacked. However we interpret this, these kinds of events happen a lot. By hodling Bitcoin, accumulated over the years, we can avoid rushing out of alts because we already have Bitcoin. In our situation we therefore bought alts at a discount. Nobody knows if they will drop more but the chances are they will have to rally against bitcoin in the future. (We now have Blackrock Exchange Traded Funds).
To a lesser extent, doing this with Ethereum during lower priced market cycle eth may allow you to use more expensive gas fees to take advantage of rising prices during bull markets.
The key takeaways from being involved in cryptocurrency
A long term market
We will all have hunches that pay off profitably. It can make us seem like a genius and become all believing in our trading ability. My opinion is to be in cryptocurrency for years to grow real value. Otherwise we are simply gambling.
Francis Hunt (no affiliation) explaining growing capital through crypto is a long term effort
We won't put large sums into any asset unless it is seen as a better long term store of value than cash
Imagine we have invested £10k into cryptocurrency and it is now worth £100k. Should we now put another £100k in? Our preference is not to. We are suddenly on the hook for £110k. It is incredibly tempting to want to put more in when hearing all the crypto youtubers screaming for you to buy the dip, but they won't bail you out when your portfolio collapses, they will probably buy once the price collapses. In fact, they will probably sell some alts that pumped to buy some Bitcoin. It would be preferential to drip feed in small amounts of fiat up to a value you are comfortable and stop. You may decide to take some crypto out of trading, stake some, hodl some? It doesn't make sense to store all your assets on exchange.
No matter how many times I hear crypto lovers screaming to buy the dip, I don't. I decide when to buy and so should you.
The only person that feels sicker when they invested £10k and grew to £100k is now worth £10k, is the one that invested £100k and is now worth £10k.
A cautionary tale, cardano
Am not picking Cardano as an example for any specific purpose, it is a great project, and personally own Cardano. The point is to use this as a warning on listening to influencers.
Cardano was as high as £2. During its fall down to the twenty pence region, have been accumulating a large number of coins. If it reaches £2 again, or higher, things will be great. The question, will it? How many of the Cardano influencers genuinely understand the merits of Cardano's tech and tokenomics over other blockchains? As a developer keen to develop blockchain services, am still evaluating which ecosystem is the best blockchain to develop on. Recently, have seen a number of influencers claim they have sold their eth for Cardano, are all in only for the price to drop a lot more. How many put lots of cash in to see that value lose?
Given the volatility seen in Cardano, why would anybody keep buying the dip? Why would you dollar cost average in? Why not buy say, 500 coins, and keep swing trading along the volatility? The only reason is you have proper trading insights through decent analytics and metrics.
Cardano chart showing big increase from Mid October 2023 to Mid December and gradual pullback since
We have taken a snapshot from Trading View and drawn some circles to show points where there were big gains or big falls. We also drew a few examples where we get big wicks to the upside and downside on the daily. Big wicks represent opportunities to swing trade on the day, big falls over a number of days represent opportunities to buy the dip and big rises demonstrate selling opportunities.
We pinpointed the 2nd January. We browsed a popular Cardano maximalist's account on the 2nd January. They retweeted one technical analyst saying ADA was forming a bullish pennant. They retweeted another account saying they are only buying Cardano or holding Cardano. On the 3rd of January they tweeted "Bought some more ADA". By the 7th January, taking the biggest range - the coin had fallen approximately 60%, a more end of day put that at approximately 50%. Today, 27th January, whilst increasing slightly, Cardano is even lower.
If you had been buying and hodling, you would be down so much. We don't know how much they hold, how much they buy or sell, we certainly don't know how much money they are holding? Hell, maybe they are getting paid to keep this up by whales? We don't know anything about this in most circumstances.
Dollar cost averaging doesn't seem like the best option (opinion)
We seem to know that many coins are between 1% and 15% off their all-time highs. That is probably a good time to be buying some coins. However, some will drop even further. When these coins are at 85%-130% off their ATHs, why would anybody keep buying more? Now, some coins may 5x, even when near their ATH but without solid risk vs reward analysis, it is best to stop putting more money in.
For the person that has little to no trading ability, it can make sense to buy small amounts regularly as long as they are fully aware the value could collapse.
A tradesman I know did a repair at my house. He explained how he had put £50k into crypto. At the time, he had a lot less cryptocurrency than myself. This is not a brag, but why put money into something that can be accumulated by setting limit orders applying simple swing trade strategies.
Many cryptocurrencies will never return to their all time highs.
Almost all cryptocurrencies inflate their supply, some have burning in place to reduce the supply but we also have thousands of coins. The reality is the total number of cryptocurrency is increasing which should mean the price drops. Market forces determine that not all cryptocurrencies will keep increasing in value, many never will recover their price.
You don't know when another person exited or entered the market
One not to be named wise YouTube investment personality keeps accumulating gold - all about physical. One thing I can almost put money on - she uses paper markets to accumulate more physical. Can I prove it? No. How easy would it be for a normal retail investor to execute the same strategy (assuming I am right)? It would be almost impossible to do.
It is the same with the crypto Youtubers, there are some honest people out there. However, we don't get to see every single trading decision they make. If they bought a coin that has done 30% in the last week and they are up 30%, and you have owned that coin for a while and are still down - ignore them. If they say they took 30% profits, do they tell you that the coin went to 200% and they missed out on massive gains? Rarely. Even if they did, are you watching every single episode? Unless they are livestreaming all day, it is impossible to know everything they are doing.
One famous trader was boasting the other day that he had warned people to take profit after seeing Bitcoin pull back. Supposing people have a different time horizon, or a different strategy?
We are not talking in terms of being a contrarian. A lot of what Crypto Statto is about is doing things at a time when most wouldn't think to do it. A lot of the reporting infrastructure is in the platform ready to be put into action. One of the areas we are focusing on are reversals and sustained upside. Even on a manual basis, on say a typical trading platform, look for big drops and big gains. If I happen to see a coin that I hold has gained by 10% against BTC, I will exit existing orders and sell it. I will then set to buy back 5% below the sale price. It isn't easy to spot these because the dashboards they provide don't tell you enough about the price changes over smaller time periods against larger ones.
Wrapping it up
The reports we are adding to Crypto Statto will mimic the trading strategies and hunches that we employ. We are planning to find historical trades we have executed on to demonstrate how we have gained coins over time to articles on this platform, and to guide the reports we are providing. We hope this article gives some sense to the cryptocurrency market and why most should not be putting lots of money into cryptocurrency.
An update, 24th January, what I suspected would happen to the cryptocurrency market did - it dropped. All those moonboys screaming which alts will 10x, telling you to buy the dip may well be right over a longer time horizon. Now though, keep collecting coins through the highs and lows for free is far less risky.