Cryptobuzz #3
News from South Korea crash the crypto market.
Will it recover? (Reading time 5-7 min.)
So, for those who don’t know, this past Thursday (Jan 11th), officials at the South Korean
government said they plan to ban crypticurrency trading in the country. Coupled with the
announcement from coinmarketcap.com that they are removing Korean exchanges from its
list of market places, these news triggered a selloff in the crypto market.
Since then, these news also proved to be inaccurate and greatly exaggerated:
“Justice Minister Park’s comments related to shutdown of cryptocurrency exchanges is one of the measures prepared by the Ministry of Justice, but it’s not a measure that has been finalized,” a spokesman told reporters in a text message.
These kind of statements have an artificially generated FUD (fear, uncertainty and doubt) written all over them. So why isn’t the market bouncing back?
Well, there are several factors to consider here.
The time it takes for investors to panic sell is quite different and also dependent on the losses they incur. Some will sell at the first sight of smoke, without checking if there is a fire. Some others will wait to see where the market goes, but may give in to the fear later on and sell their positions at a later time as the market continues to go down.
Many investors will use the opportunity to open “short” (sell) positions and actually take profit from the declining prices. Others will simply take profit and wait for the dip to re-invest.
In general, new investors who are not too familiar with the crypto market will jump to quick conclusions driven by emotions, which is a big mistake. “I knew it! They told me it is a bubble and now it’s bursting…they told me it is not real money and it will not last long” and so on.
What a lot of these investors fail to realize is that the world of crypto is still at its beginning stages. Most of the projects in the crypto space are driven by hype and speculation with POSSIBLE uses for the technology sometime in the future. Sure, some of them already have working products and crypto currencies as a means of payment are gaining more and more recognition, but for the most part this technology is at its infancy.
Moreover, It is yet to hit the mainstream. In other words: “the herd is coming”. It is coming and it is not interested in anything other than an opportunity to make some quick money. Fear is one of the biggest driving factors in human behavior and fear of missing out may be just as strong as the fear of losing.
You may ask: “Yes, but WHEN is it coming?”. It is hard to answer this question, maybe in a month, maybe in 6, but I am fairly certain it will happen sometime during 2018…and when it does, the bullish rallies we have seen in November-December 2017 and January 2018 will look like small hills on the charts in comparison.
So what actions can we take in times like this and what mistakes should we try to avoid? |
First and foremost - HAVE A PLAN!
Are you planning to stay in the crypto world for several years and see the projects you believe in fully realize their potential? Or maybe you want to ride the hype wave for a while, then take the money and run? Both are legitimate choices, but requires different strategies and mindsets.
KNOW WHEN TO TAKE YOUR PROFIT. If you believe in a long term hold for some projects, by all means - HODL!
However, if you do, try to remove your emotions from it. There will be wild swings. You may see your investment shrink by half or even more before it bounces back and keeps going up. Tron (TRX) could be a good example for this.
It is currently (at the time of writing) less than a third (8 cents) of it’s all time high (30 cents) , which was only 10 days ago! Such a drastic fall is enough to shake the confidence even in the strongest of its supporters, but if you do believe in the success of this project in the long term, this could actually be a golden opportunity to buy some more at a greatly discounted price.
Personally? I got into Tron around 3 cents and will be probably selling my position until I start seeing some steady movement up. It is a very ambitious project, which aims to take the spot at the very top, so getting in at a higher price can still prove to be a good long term investment. If things go well, I could see it go to or beyond the $1 mark.
DON’T PANIC SELL - ok, so you may be down on your investment, but remember - you do NOT lose any money until you actually sell your position. Unless you invested in a terrible coin, chances it will get completely devalued are not that big…ESPECIALLY with the herd coming in the future. On the other hand, if you made an impulsive decision and invested in a s**t coin purely based on hype? Well…you’ll probably have to reap what you sow and minimize your losses.
HAVE CONCRETE TARGETS - this directly relates to the “know when to take your profit rule”.
Are you focusing only on projects that can give you 50-100X gains? Extremely risky, but if that’s what you want - go for it. Are you you focusing on projects, which can give you 3-5X in the short-mid term - also risky, but more realistic. In which other markets have you seen a price go up 300% in a matter of days?
Decide if you are holding or flipping. You can close your entire portfolio and reinvest in some new coins or ICO’s if you decide you made some nice gains. New coins are coming out every day. That’s also a sound strategy, though also very risky and time consuming. Not to mention the fact that you need to have nerves of steel to make such a move. It is much easier to just HODL the coins you believe in and forget about them for X amount of months.
My personal outlook on this market is that it is INDEED a bubble, which will burst at some point…whether this will take 1 year or 5? I don’t know. What I do know (or at least quite certain about) is that 90% of the projects you see today will fail or disappear. It doesn’t mean you can not make money on them now, while they are still in the development stages, but it is always good to have this knowledge at the back of your mind.
There was an enormous amounts of companies during the dot.com bubble, which disappeared…but companies like Google and Amazon are still here and if you invested in them back then, you are probably sitting on a very nice amount of money today.
So, to summarize….take a deep breath. Plan your future strategies and when to take profit. Be prepared that this gold mine can collapse sooner than you expect and plan ahead.
Happy investing!