Many crypto investors were startled to wake up this morning and find prices across the sector substantially lower. Some cryptos were down as much as 30% or more, and many investors were left feeling nervous watching prices so much lower.
Yet given how there is not any particular breaking news that led to the move, this serves as a reminder that there’s going to be a lot of volatility. There is a lot of money flowing in and out of the sector, and with some of the gains already being unlike anything I’ve seen in my career, there are going to be corrections along the way.
If you’re trying to time short-term moves and do a lot of trading, by all means go for it if you can pull it off. However what allows me to like the cryptos as an investment, is a long-term belief that we are looking at new infrastructure that will facilitate a shift of wealth away from the dollar system.
My investment in cryptos is essentially a bet against the current debt-based system. If that assumption turns out to be correct, then whatever happens to the price today, tomorrow, or next week should really be somewhat irrelevant as long as the fundamentals haven’t changed.
Of course if you do not share the assumption that we are witnessing the degradation of the dollar based system, then perhaps it is not as wise to be invested in cryptos right now. Because in that scenario it would make more sense that we are closer to, or past some sort of fair value.
Either way, having enough information to begin forming your own basic opinion about what the sector really represents makes the other decisions a lot easier.
Also worth mentioning is that if the fluctuations in price get to the point where they are affecting your everyday life, that could be a sign that your position size is too large.
Yes, it is an exciting market and there are interesting possibilities. Yet just a reminder to use some caution and make sure you allow yourself to stay in the game. If the scenario described above does play out, even a few hundred or thousand dollars invested and just left alone will serve you rather well.
Since making the decision to increase my investment in cryptos, I have been feeling more and more as if the best thing I could do is to pick the ones I like the best long-term, and then do as little tinkering as possible.
I understand there is often temptation to try to time the market and assume that we can guess when one asset is going up and the other is going down. Although for what it’s worth, my goal has been to just continue to learn about the companies I like best, and then just leave them alone.
These are certainly exciting, if not challenging investing times. It’s been fascinating to see not only how low the market went, but also how quickly it rebounded. This type of volatility should be expected going forward. But as long as you are trading at a size that’s appropriate for you, you can have your investments and still sleep at night.
But it starts with learning as much as you can and continuing to form your own opinion. Because once you do that, all of the other decisions become a lot easier.
December 22, 2017