Seven keys to winning in crypto
Crypto has a history of rewarding long-term investors who believe in its world-changing potential.
On the other hand, it tends to penalize investors with “weak hands”—those looking to make money who can’t or won’t stay invested through volatile periods.
That’s why rule #1 in crypto is:
Stanley Druckenmiller and Paul Tudor Jones talk about trading and position sizing
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#1 Embrace the volatility
Throughout history, early stage assets have gone through HUGE booms and busts.
The first 120 years of the US stock market are full of panic and crashes. Railroads, canals, oil, automobiles, and the Internet were all extremely volatile when they were young industries. They rewarded early investors with 10X-100X their money.
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This will not be the last crypto “bust”. You can’t get 20X gains in two years without big sales too.
#2: Accept that you are under water at times
I’ve been in crypto long enough to witness a few cycles. These ups and downs have thickened my skin over the years.
If you are used to investing in the stock market where 50% sales are rare and 70% sales almost never happen – crypto is a shock to the system.
Know that every crypto veteran has had their hat handed to them multiple times. You can get beat up, you can get knocked down, but to succeed you have to get up and walk again.
When prices hit record highs late last year, the world wondered how much money crypto investors were making. In recent months, we have seen the other side of it.
#3: Be optimistic
Be prepared to read tons of negative crypto headlines. They are nothing new. People have been writing off crypto since the beginning. Hundreds of “bitcoin is dead” articles have been published since 2011.
The history of technology is the history of people saying, “This will never work.” It happened with the horseless carriage (car), the plane, the internet and the iPhone.
In short, humans are hardwired to be pessimistic. The skeptic who talks about what could go wrong sounds intelligent. He sounds smarter than the ignorant optimist. That’s why you see so many gloomy Wall Street analysts on CNBC.
Being optimistic is not the same as being naive. As Nat Friedman, CEO of the software company GitHub, said: “Pessimists sound smart. Optimists make money.”
#4: Remember that you make most of your money in bear markets
Famed value investor Shelby Davis once said, “You make most of your money in a bear market; you just don’t realize it at the time.”
Thousands of millionaires were made during the last crypto bear market. These are the people who bought bitcoin, Ethereum and other cryptos at depressed levels when all the tourists had left.
I am extremely confident that this will happen again. Remember, all previous crypto bear markets had one thing in common: They ended with crypto going on to make new records.
#5: Proper position sizing is key
Investors should only allocate a small portion of their portfolios to crypto. One to two percent is a good target. Five percent pushes the limit. In general, you should invest less in crypto than you think you should.
It sounds strange coming from the “crypto guy”, someone who has staked his career on this technology. But proper position sizing is key to surviving and staying invested through crypto booms and busts.
The biggest risk for most investors is that they buy too much crypto, panic when prices fall, and panic sell near the bottom. I know people who bought bitcoin as early as 2013 but hardly own any crypto today because they were overexposed and pressured to sell.
All they had to do was sit tight and they would become multi-millionaires. But they couldn’t do that… because they owned too much crypto.
If you believe that crypto and blockchain technology will transform the world (as I do), you only need to own a little to make a big difference in your financial life.
#6: You have to stick around during the tough times
The other day someone asked me, “Isn’t it better to ignore crypto when prices fall and jump back in during the next bull run?”
You never know when prices have bottomed out or when the next bull run will start. More importantly, only investors who stick around for the tough times have the conviction to buy quality tokens when they are at 90%+ discount.
Crypto innovation happens at a lightning fast pace. Hundreds of new crypto businesses are created every day. If you go away for another month, you will be several steps behind.
It’s like a pro NFL player saying he wants to stop training for a month and play a full game on his first day back. It won’t end well.
Most investors I know who made incredible gains in the last bull run stayed and continued to learn during the 2018 bear market.
The people who left and came back missed a year’s worth of “earned secrets”…and failed to catch the big winners.
#7: Think like a venture capitalist
Venture capital (VC) has been the envy of the investment world. According to Cambridge Associates and Invesco, the top VC funds have beaten the S&P 500 by 1,100% per year for two consecutive decades.
VCs cut checks to startups with the goal of profiting in a decade when or if the company goes public. They are willing to wait 10 years for transformational gains. It is no coincidence that investors with the most patience are also the best.
Most crypto businesses are equivalent to early stage startups. The big difference is that crypto “startups” have tokens that trade 24/7. Whereas traditional startups are private and you can’t buy or sell them.
To be a successful crypto investor you need to drown out the daily price movements and think like a VC. Crypto is a long-term investment.
Be patient and take a long-term view. When you zoom out five years from now, these daily price swings won’t matter.
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Article by Stephen McBride, Mauldin Economics
