Since December 2017 we’ve seen a massive influx of new investors in the crypto space, and the inflow of their fiat has lead to a massive boom for altcoins. This has inflated values and with many making astronomical fast and easy gains by simply gambling on symbols on an exchange, I am seeing the market reward the very worst type of behavior for investors. More and more in this sub I see people bragging about how they randomly threw money at some shitcoin they didn’t even research but just saw shilled here and made 3x on their $500 investment, as if that’s something to be encouraged or celebrated. This type of investment style will not last and will only lead you to lose whatever gains you have made recently. I have been holding Bitcoin since 2013, through the Mt.Gox disaster and only sold now in December for over $470,000 in profit. I held Ethereum for almost 2 years before I decided to take $32,000 in profits recently. A 5 year investment window may seem like an eternity to the largely young investors that are coming in now, but it really isn’t that long. For crypto to be a truly life changing investment for you, you have to get over the « get rich in the next month » mentality that is rampant now and get past the lambo psychosis stage.
First of all here are some good tools that I’ve found have helped me a lot:
Market News and Tools
- http://www.coindesk.com – Overview of what’s going on in the crypto world
- http://cryptopanic.com – An aggregator of various crypto sites and news, filterable. I use the pro version to customize the feeds but the free version is good enough for most.
- http://coinmarketcap.com – Not just for checking prices, they also are the most convenient way to start your research as they have the blockchain explorers, official website links and also a useful API that can be linked to Excel.
- http://cryptomaps.org – Visualization of price across different segments, primarily hashing functions and ICO release dates
- http://onchainfx.com – A better version of coin market cap, has all sort of columns and you can add flags. Only downside is it only has 61 cryptos, but its always adding news ones.
- http://icotracker.net – I like this site for looking at what ICO are coming up
- http://icobench.com – Another ICO tracker which does nice summaries, shows teams, milestones, financials and gives a rating for each ICO
- http://solume.io – compares the number of Twitter mention increase decrease to price
- http://eveningstar.io – this is basically like Morning Star except for cryptos
- https://bitcoin.tax – for calculating taxes owed on your crypto gains
- BitcoinTalk Forums – Probably my favorite place to discuss crypto. Much more intelligent discussion than in this sub.
- Steemit and Medium have tons of great blogs about crypto, find what alts specifically interest you there.
- Follow developers on Twitter, Reddit has decent communities for each coin, /biz/ is for pink wojaks, memes and pumping
- Delta – get this app, its awesome and better than Blockfolio
There are online sites like AltPocket and CoinTracking that will do portfolio tracking but I haven’t found any I would recommend, I prefer to use a CoinMarketCap API Excel tracker which automatically updates prices and consolidates everything. Excel is still the best and most flexible thing to use by far and you can customize it infinitely to your liking.
Basic but Important Advice
In addition I’ve come up with 10 simple advice points that will take you quite far and will make you much more of an intelligent crypto investor:
1) Don’t have more than 5-10% of your entire investment portfolio in crypto, and only invest what you can afford to have locked in for the long term.
We are definitely due for another large correction, so you must be comfortable with losing 80% of your portfolio value in case of a crash and sitting back and letting it slowly recover. Personally I would recommend that once you double your profit, pull out the principal so you are only playing with profits.
2) Don’t chase a pump
Never buy on rapid upswing on the candlestick chart if you’re not sure why it happened and can’t figure it out. The reason is likely that it is a Pnd. PnD is « Pump and dump » and it refers to a trading scam where people organize to coordinate the laddered purchase of an asset, then wait for others to come in at some delay and further increase the price before coordinating the unloading of their position once a specific price target is reached. This is illegal in the stock markets, but since cryptomarkets are unregulated such schemes are rampant. There are many PnD groups and today they are largely organized on Discord channels. I am part of 17 different ones just so I know what they are pumping, and I recommend you avoid them and stay clear. They are now structured into tiers where the top tiers get a signal earlier than the bottom tiers and usually by the time the bottom tiers get the signal its too late, so unless you pay money to part of the top tier or have a connection with the admins its not even profitable. They are bad for the market as a whole and they prey on those who are looking for short term moons to latch onto. Don’t look for things that you think will moon today, look for investments.
3) Holding will give you more returns over a year than day trading.
You will find that most people who made six figures or more in crypto did it by holding over the long term, very few get rich by day trading. That said you should definitely learn a few indicators to see if you’re getting in at a reasonable entry point. I find that the MACD (moving average convergence divergence), RSI (relative strength index), market depth and support-resistance lines are the most useful indicators for crypto. MACD is useful for looking at where the long term price should be in divergence to the short term movement, RSI gives you an 0-1 rating of how overbought/oversold it is and support-resistance lines gives you a floor and ceiling for how high it will move in your buying period. If you do short term trading, do it when you have high certainty that a specific news will lead to an increase. Some of these specific events are: upcoming roadmap item releases, fork airdrops, exchange additions and partnerships. For example, in mid-December it was first announced that the Bitcoin Private fork that is upcoming would release an 1:1 airdrop of BTCP to holders of ZClassic because Bitcoin Private would use the same ZSnarks technology. At this time ZCL was only a few bucks, and thus this news has made ZClassic an attractive short term buy as there would be demand for people to have it purely to get free Bitcoin Private once it launches. Short term buys like this are smart moves based on some underlying value assumption being changed, trading purely on volume and patterns is generally akin to gambling on markets that are as inefficient as most cryptoassets.
4) Take your time and research what you are putting your money into.
I cannot stress this enough, you are buying an asset with your hard earned money, and it should have some utility. Start by reading the whitepaper that is on the main site for the coin. You can avoid a lot of scams by simply critically evaluating the question: « Why does this coin exist? » Is it simply trying to apply a blockchain to something that doesn’t need it or is there a transactional inefficiency/problem that the unique properties of the blockchain can solve? For example, the blockchain is immutable so the use case of tracking designer luxury goods across a supply chain and guaranteeing authenticity of a item makes sense. On the other hand trying to push the blockchain transactions into dentistry makes little sense. Designer good companies have a problem with conterfeit goods entering the supply chain and need some solution, dentists don’t have a problem with charging people on their VISA for fixing cavities. Ask yourself what value the actual token would have in the ecosystem its part of. Does it pay out some kind of dividend like some coins, or is its value in that its used as part of transaction fees and is thus being burned? You can make a simple checklist for every crypto and just answer these questions to yourself for each coin you look at:
- What is the problem or transactional inefficiency the coin is trying to solve?
- What is the Dev Team like? What is their track record? How are they funded, organized?
- Who is their competition and how big is the market they’re targeting? What is the roadmap they created?
- How will they attract their target market, how is their marketing?
- How does the coin derive its value? Is there some sort of dividend structure, profit sharing plan, or is it a store of value within a digital economy? What is the float schedule like going forward (ie. how many coins will be released or burned)?
5) Learn to recognize FOMO when it arises within you
If you ever feel this itch to get in on an rapid upswing because you don’t want to miss out on some new development that is causing it, stop yourself from knee jerk reacting to this feeling. This is called FOMO: « Fear of missing out » and its what drives the market now. It happens to everyone and it leads to emotional investing and knee jerk buying/selling.
6) Recognize that lots of people actually are also losing money.
Right now there is a confirmation bias happening where people who get quick gains go out and brag to all their friends all over social media, leading to this illusion that making money trading crypto is a surefire way to make money. That dopamine fix you get from seeing the position double will make you feel like a genius and its human nature to want to advertise it. What you forget is that those who lose money keep quiet about it and don’t advertise their failure.
7) Accept that you will miss out on a lot of moon missions, and that’s perfectly okay
Right now the crypto market is like a giant dumb money party filled with coked up headless chickens running around throwing money at every shitcoin with a low nominal price hoping it goes to $10,000 like Bitcoin. Everyone is a genius in a bull market, and this creates a feedback loop of more money come in. You will miss out on these gains, but don’t let that get to you. Sure by not buying into Tron at $0.07, you missed the big moon to $0.25. Buy you will also avoid FOMO-ing in and then getting stuck with the crash that will follow right after (its at $0.11 right now). By taking your time to make your decisions you end up focusing on the fundamentals rather than short term movements.
8) Understand the float.
Look at the float distribution and who owns what supply of the coin. You can avoid most scam coins by simply considering how much of the supply the owner assigned to themselves and organizations they control. A lot of coins have no purpose other than giving a substantial portion to the owner, who then hypes the coin all over social media and unloads his stake for real money.
9) Think of not only individual position, but how they fit in your portfolio and your diversification
Its good to diversify across different opportunities, but too much diversification is just saying you don’t feel confident about your positions and are just casting a wide net hoping to hook something. Generally 6-12 positions is the ideal diversification spread in my opinion. It gives you a good spread across sectors, doesn’t spread you too thin and any more than that is too much to keep track of.
I like to think of the portfolio in terms of these segments:
- Core holdings – BTC, Ethereum, LTC…etc
- Privacy coins – Monero, Zcash, PivX..etc
- Finance/Bank settlement coins – Ripple, Stellar…etc
- Enterprise Blockchain solutions -VeChain, Walton, Libra…etc
- Promising/Innovative Tech coins – Raiblocks, IOTA, Cardano…etc
- Speculative/Moon shots – BountyX, FUN…etc
Your risk tolerance should dictate how much you allocate between your Core holdings (which are generally considered more « safe » since Bitcoin and Ethereum will be around for a long time) and the various segments. I personally am okay with a 30% core holdings, 70% across various other segments. However 60/40 splits between core and other segments is probably a good starting point for most newbies. You can make visualizations in excel with pie charts and keep tabs on your segment allocation.
10) Look for red flags and recognize that 90% of these coins have a net present value of zero.
Look at every new coin you evaluate with a sceptical eye, because now there is way too much hype for vaporware and coins that have no use case and are just yet more ERC20 (Ethereum-based) get rich quick scams by the founders. For a lot of these coins there is a lot of shilling that tries to pray on your emotions. Recognize red flags:
- Massive portions of the float are assigned to the founders of the coin. Anonymous teams or members with a sketchy pasts are also a huge red flag.
- Use case does not require or benefit from a blockchain
- Empty Github repositories, or there being scant useless code
- Vague whitepapers and websites filled with technobabble that sounds impressive to people who don’t know tech.
- No clear or well developed roadmap
- A team that focuses almost entirely on shilling rather development.
11) Try to not check your portfolio more than once a day.
With apps like Delta and Blockfolio (btw Delta is a million times better) it can be really tempting to constantly pull your phone out and check the prices every hour. Don’t do this, it will drive you insane. Check once a day and you will be much happier.
I would also like to highlight the need to try and be sceptical, which is something sorely missing now. When you first start in crypto or researching a coin, it will often funnel you on this one way street to getting hyped up. For example when I first started looking at Bitcoin info back in 2012, and seeing all these articles and videos on it, it ended up being difficult for me to imagine a world where Bitcoin wouldn’t become a dominant currency. All these people who promote it have an interest in building a rosy future, yet Bitcoin has turned out drastically different to how I imagined it would be once it gains mainstream attention. Bitcoin was able to balloon to its current price based on being the first crypto and I will always have an emotional attachment to it, however its also taught me to be much more sceptical of high S-curve adoption predictions. We are still a long way from having even Bitcoin being near mainstream adoption, let alone any other crypto with a fraction of its brand name recognition.
If someone is telling you « X coin will be [insert high price here] by Z time », don’t believe them. They hold the coin and want you to increase its price by buying. If a coin is promising the moon and telling you that you would be a fool to not buy it now, and you’re wondering who the greater fool will be to buy it from you, you’re the greater fool.
There is plenty of good within the crypto space, and there really is no other market that behaves like it. Over 90% of the 1398 cryptocurrencies on Coin Market Cap have a zero value under any quantitative valuation model you can imagine and they will inevitably die out. However there are those coins with genuine business plans and use cases that will prosper and possible prosper spectacularly in ways we can’t yet imagine. Invest accordingly and you will be rewarded.