It’s been a rough ride for crypto investors over the past couple months.
We’ve faced a crypto bear market where over half the market’s value vanished, leaving most investors holding the bag and coping with short term losses.
Nearly three months ago, on January 7th, 2018, the cryptocurrency markets set an impressive all-time-high in Total Market Capitalization of $834 Billion USD. To put into perspective how impressive this is, the Total Market Cap was just $102 Billion USD as recently as September 15th, 2017 during a big sell-off.
This means a well-diversified investor in the crypto space could have made 800% gains in a matter of only 4 months.
This sell-off and short-term low last September was caused by bearish media reports of China banning cryptocurrency exchanges as well as Jamie Dimon’s infamous “Bitcoin is a Fraud” comment.
The Current State of the Crypto Markets
Just as quickly as we saw the upwards price movements in Q3 2017, we have seen severe downward price movements in Q1 2018.
At the time of writing this, the Total Market Capitalization is just $340 Billion USD, nearly 60% less than the all-time-high of $834 Billion set in January. Investors have seen the same coins that pumped to the sky just months prior being slashed by over 50% in a matter of days.
Two particular events causing massive sell-offs:
(1) The first expiration of CBOE Bitcoin Futures contracts on January 17th
(2) China completely banning and blocking external cryptocurrency websites.
Currently, the market no longer reacts to expirations of Bitcoin Futures contracts from CBOE or CME, likely due to the fact that they are settled in USD and NOT in Bitcoin.
We can only hope that the market will do the same eventually for any negative news out of China. There have been countless occasions where China banned cryptocurrencies in one way or another.
Coping with Short Term Losses in the Bear Market
Whatever the reasons for the sell-offs and price crashes, these are hard times for crypto investors.
It is a good time to take a step back and learn from any mistakes that were made; such as FOMO buying when prices are high, investing in scam coins, and not taking profits.
Understanding What Happened and Why
Last year’s growth came from a mix of old players increasing stakes, bullish developments and advancements in blockchain technology, ICO mania, and last (but not least) stupid money rushing in and looking to get rich quick.
To some extent, the valuation achieved by the cryptocurrency markets was driven by long-term levers such as the technological advancements and increased investment from long-term players. However, much of what we saw was driven by short-term thinking and FOMO.
It’s important to understand that these short term trends will come and go. They have no bearing on the long-term trajectory and potential for cryptocurrencies.
The ICO mania has calmed down, the FOMO buyers have all panic sold, and they will return later this year; along with even more newbies, as the adoption rate continues to increase.
Focus on Fundamentals and use more Tools
As a crypto investor, it’s important to understand that everything we put into this market is 100% speculation.
There are no established or reliable valuation methodologies for crypto. Keeping this in mind, Focus on the fundamentals and use as much information as you can (see this post for crypto valuation metrics) and use all the tools at your disposal before making investment decisions.
There are also a number of projects that aim to help crypto investors leverage more advanced tools such as Signals which will provide users with access to data science and algorithmic trading.
CoinFi is another project which plans to be the “Bloomberg of cryptocurrency” and bring advanced market intelligence tools to the market.
Develop a Long-Term Mindset and HODL your Crypto
At the very least, learning to HOLD during bear markets will save you from serious losses from emotion-driven selling.
It takes strong hands and thick skin to HODL through these crypto bear markets, but this is the price you pay for the opportunity to experience the enormous gains we saw last year and in prior years as well.
Investors should be fully prepared to experience these losses and practice restraint in going “all-in” so they are able to buy when prices are low; dollar cost averaging down on positions.
It’s also important to truly believe in the future for blockchain technology, If you’re a true believer and you have the vision for the future, the current downturn doesn’t mean much.
Over the past couple years, every crypto bear market has been followed by a more intense bull market.
Keep those hands strong and Hold On for Dear Life.