The last couple of weeks in the crypto world provided a madness of expectations. Hyperbole that could quite possibly be compared to any bubble since 2000. Bubbles that are completely losing any relation to reality and that are almost like a dream come true. Making mad money without any risk. Even the absolute rookies starting recommending you cryptocurrencies without any possible throwback - this is exactly the point where you should start to understand that something is getting out of control. However, there is also the sphere of the more complex understanding of why this market is doing what it is doing and where the hyperbole has to agree to a certain value underlying this upward movement.
Please don't start with the tulip bubble. The tulip bubble had 0% reasonable underlying value. You basically skyrocketed a price for a flower that had no additional value than to wither after 4 days in average and to look good. Damn, this is like paying the Kardashians 5000% more money in the course of a few months while looking good. Wow, sounds like exactly what is happening with the Kardashians at Instagram? Wow. In general the regular world of stocks and derivative instruments often times tries to balance out risks with correlative risks in order to hedge outter edges of risks - or they try to speculative on definite change (butterfly spread). All of those factors are hardly applyable on the cryptomarket.
Any bubble that has a confirmed underlying value above its looks, but bursts towards unprecedented heights and unrealistic expectations creates a big and unneccessary vacuum in the market that highly limits the room for maneuvering. Once you're in there is no way back and please, guys don't sell when you are making losses. Just don't make this mistake.
The vacuum will eventually turn into the expectations game back again and the bubble will transform to a rocket. The rocket will reach the vacuum again and then it will turn to a bubble. Bulls and bear markets have one thing in common: First comes first serves. The inside of a bubble as much as the inside of a rocket always contains a true value, a supporting feature of that will eventually remain no matter were the market is heading. Never forget about the line of support among the field of destruction. Also on your way up never forget about your resistance forces that will tear you down. Don't get greedy and don't loose faith.
How does all of this blend into Ethereum, Bitcoin and Cryptocurrencis in general? The currencies themselves have an underlying value. The Blockchain. In my latest discussion with experts from the finance sectors, stock exchange and regulatory institution it is not about prohibiting cryptocurrencies, it is about finding the right balance for a market that is just starting to become attractive. Overall, there will be a highly volatile market notion remaining along the full journey. You cannot change that. What you can try to change is your mindset - the how. How you are going to invest into cryptocurrencies? Do you want to make the quick lambo coin investment? You shouldn't try that. In a logarythmic regression the bitcoin is expanding strongly in the last 5 years, however, in a point-in-time comparison bitcoins and cryptos can drop by almsot 80-90% in a blink of an eye without you noticing and the worst thing you can do is sell when it's low.
This means for you that you should collect information on what's what. Which coins are you intersted in and what is the exact reason for the coin to stay in the market for a long time. You can only bet on an overall idea of a coin and not on a short time arbitrage - well you can but don't start complaining when you lose money. It is all a big risk. All investments show return on investment and this can be positive or negative. The risk is the leverage for your increased ROI but it can also be your biggest enemy for sustaining your worth.
Never forget:
- Cryptocurrencies have an underlying value: The blockchain
- Cryptocurrencies have a high volatility and therefore contain risk in both directions
- In this market you can not truly diversify your portfolio - the diversification shows no observable pairs like Oil and alternative Energy in terms of opposite correlation. You cannot hedge your losses. If the market moves down you will move down with it. You either believe in the market or you don't- If you don't then don't invest in cryptocurrencies.
- Don't get excited when you see coins exploiding by 1500% you are not able to track these kind of explosions - pumping and dumping always happens. Concentrate on what you can assess properly.
- A good entry point is part of what makes your ROI great
- A good exit strategy is part of what makes your ROI great
- Distinguish what's a long term and what's short term ROI investment for you
- Don't get greedy
- Don't get scared
- Listen, read, discuss and learn from the community
Good advice
Thank you kathythompson!
You can get diversified but only in terms of type of coins/tokens, not in terms of in or outside the realm of blockchains.
In general I agree wekkel, however, the diversification you would be doing is only a risk minimiziation in terms of spreading your investments into different coins and in terms of the current market this strategy will not help you. All or most coins are moving down right now.
What I mean in terms of true diversification is that in the regulated market when you compare markets like the energy markets and its different investment opportunities you may be able to "Hedge" yourself in a position in which you invest into Oil and alternative Energies since those would be having a correlation in situations in which Oil would become much more obsolete alternative energies might move upwards and gain importance in different segments on our economy. This hedging is basically creating a balance and it would even out the losses somehow.
In general I don't see this kind of correlation hedging being feasible in the cryptocoinmarket since its high volatility is moving the full market in a bear or bulls situation. The coins showing positive effects are safe harbours for bump and dumpers saving their money in possible secure upward moving coins. However, those coins don't really show a sign of correlation or reason as to why they are moving upwards. In our example with oil and energy from alternative sources we have a strong correlation meaning that the one will profit from the losses of the other and vice versa.
Does this make sense to you?
Thanks for your clarification.