Investing in crypto is becoming easier once again. All it takes in order to buy your first cryptocurrency is to download an app, link it to your bank account, answer some questions, and away you go. However, what about the actual money making? It’s so much harder than you might think.
Only 5% make money
One thing to consider when getting into crypto is that unless you are buying Bitcoin, and you are prepared to hold your position for a few years, only around 5% of traders and investors will actually make money.
This is rather a sobering thought, and the vast majority of the 95% of losing traders/investors will probably not be aware of it before they begin their first foray into crypto. If you are still thinking of dipping the toe, and you are reading this article, at least you will be forewarned of what is likely to happen.
A thrilling and liberating experience
For those of you who grew up in the time of Wall Street, stocks and shares, and government bonds, but having to invest through a broker who demanded a hefty fee; the freedom of crypto investing has to be experienced.
The ability to just buy stuff with a tap on your phone is extremely liberating. Of course, you can also buy stocks almost as freely, although crypto does trade 24 hours a day, every day, and it is usually much more volatile, in that when it goes up, it can really shoot up fast.
So you buy the odd cryptocurrency or two, and you have the excitement of constantly looking at your phone to see how much they have gone up, or down. If crypto is in an uptrend, even completely unknowledgeable traders can randomly pick a crypto and experience the thrill of watching their crypto go up.
The psychological impact of trading
However, in a downtrend, and we are currently still in one, holding a crypto and watching it bleed out practically every day, can be the most miserable time for anyone, especially for someone who does not understand the psychological impact of market trading.
A cautionary trader’s tale
Markets mess with your mind. For example, you have bought one of the major cryptocurrencies. You have done your research, and have found out that this particular crypto has great fundamentals, fantastic tokenomics, and the team all have excellent backgrounds.
You jump in, perhaps with a bit more money than you are really comfortable with, but calming yourself with the thought of all the gains you can make.
Perhaps after a week or two of some nice gains, the market turns, and in a very short amount of time you are hovering just above where you bought in. The thought of selling may go through your mind, but you think “what about the fundamentals?”, and you decide to hold on for that bounce that must be due.
You are then forced to watch as your beloved crypto position goes under water. This is when a lot of new crypto traders (or even professionals) might decide to sell. But you don’t, and you even decide to throw some more money in, thinking that the market will turn soon.
The market doesn’t turn, and your cryptocurrency (no longer beloved) is steadily bleeding out, well down on your initial entry. You go through a lot of anxious soul-searching, but then come to the decision that you are not going to be beaten by this market, and you add your final savings into your position.
There is a saying that “the market can remain irrational a lot longer than you can stay insolvent”. Many traders have found this to be true. Finally, with your girlfriend threatening to leave you, you shed a few private tears and you sell your entire position.
You wake up the next day, and the market has turned. The cryptocurrency you used to own is now back above your entry point and is jauntily sailing higher with the rest of the market.
The market will turn you backwards, sideways, and inside out, and finally spit you out without a care in the world. It won’t just happen to you, it will happen to your family, friends, and people you know. Just understand this.
Spend time in the market
The only way to survive the market is to spend lots of time in it (years). This does not mean that you buy an altcoin and just hold it. You have to protect your downside, and avoid too much risk. Buying and holding Bitcoin as the greater part of your crypto portfolio is probably a good strategy, although you do need to be aware that even Bitcoin can suffer some big downturns.
When the crypto market is in a macro uptrend, this is the time to perhaps buy some of those altcoins that are further out on the risk curve. How do you know whether the market is in a macro uptrend? You don’t, unless you have spent a few years in it.
Just buy Bitcoin and hold on
The moral of the story is that unless you are prepared to go through some extremely difficult times when buying altcoins, it is probably best to just buy Bitcoin and hold it. When you have Bitcoin, you are more likely to look into what it does and how it works. What you find out can change your life. Happy investing…
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
