Market Crash: Buy, Sell or Hodl?

The last few days have been brutal in the cyptocurrency sphere, and I mean REALLY brutal. Frankly, it hasn’t been much fun since December 2017, when we all watched our fast gained profits from the crazy bull run the months before, evaporate into nothing. And if you only got in during that bull run, you’ll almost certainly be sitting on losses and watching them get bigger.

At the time of writing (5.30pm GMT, 12 June 2018), the total market value is now $264,000,000 (source:coinmarketcap.com), a drop of over $30bn, or over 10% in just the last few hours. And that’s on top of a brutal drop just yesterday. In fact, the market has lost an incredible $594bn in just six months since the highs we recorded, that’s a pretty scary 67%! What does it all mean and what should we do now?

The first thing to understand is that these things happen. Simple as that. It’s the markets, stupid (to steal – and totally butcher – a well known phrase). There are hundreds of reasons why this happens, and none of them are in your direct control.

First, this market is tiny in terms of global value. That means it can easily be affected by low volumes and high value transactions, either up or down. That’s not going to changing anytime soon until the type of investor changes, eg institutional money comes in.

Second, this technology and concept is very new to most people – ever tried explaining it to people? (I’ve tried explaining it to my mum more than once. She’s still convinced that it’s illegal and can’t work out the difference between cryptocurrency and credit cards) Right now, only early adopters are in the game. They reap the benefits in the long run, but they take all the risks as well. It’s a wild ride, but it makes it exciting!

Third, the market is almost exclusively made up of retail investors – that’s people like you and me – and the simple fact is that we’re not very good at this sort of thing. We’re good at other things, like teaching or being a doctor or driving buses or running a small business, a whole myriad of things that are not making complex investment decisions. Hard and experienced traders are used to fluctuations, even rely on them for profits, but we, the little guys, don’t even know the rules, let alone realize we’re breaking them, and we tend to be swept along in crowds. It also means, in relative terms, there’s not much money moving about. I firmly believe that institutional investors will funnel large sums into this market eventually, driving up value and market capitalization to numbers we can’t even imagine right now, but this won’t happen until the seemingly never ending issue of custodial solutions and regulation is addressed. I’m short, they’re not allowed to invest right now. So that leaves me and you. Scared, excited, self interested, opinionated, half informed me and you.

etoro down
Etoro earlier today June 13th 2018

There are many other reasons that we could list of course. There are theories of market manipulation by large whales and stories of outright corruption, both of which are entirely plausible in a wild-west style frontier town like cryptocurrency. Hacking has shown us that we’re miles off any real secure way of keeping our coins, especially on exchanges and dodgy ICO’s have stolen our money and laughed in our faces. Bad press, usually wrong and informed, sways the masses, and countries and governments are stating and then changing their positions on the whole thing on an almost daily basis. When looked at on the global level, it’s a mess, a real bloody mess. Is it any wonder that when things go wrong, we want to dump the bags we’re holding and take the loss out of fear?

But the second part of the question posed above, “what should we do now?” is, of course, entirely within your control, and this all comes down to what your objectives are.

For me, it’s very simple. I am long on pretty much everything I hold that is large scale (BTC, LTC, XRP, NEO, EOS etc) and medium scale (Golem, Civic, SALT, BAT etc). However, small startups that I invest in, not yet listed on any major exchange, I tend to change very quickly as they are, frankly, a total hit and miss scenario. I have invested money that whilst it would be very painful to lose, it won’t bankrupt me. And, during the highs of December, I sold off enough coins to take back out my original investment, leaving the rest to ride.

I also expect these market blips. I am a long player and remembering this makes it easy. All I need to do is select the projects I like, keep reading up on them and making sure I am happy they are delivering what they said they would, and let the markets do the rest. I might, on paper, be down 60% on where I was six months ago, but I’m not actually nursing a real loss unless I decide to sell in the red. And that, dear reader, is something that goes against all fibres in my body. In short, unless there is an overwhelming reason to do so, such the total collapse of a project, I absolutely, positively will not sell in the red. EVER. But I might, and often do, buy, especially if I can reduce my average open price.

No, it’s not the end of cryptos – it just feels like it. We are just getting warmed up.

And as for you day traders, I take my hat off to you. You have balls of steel, and I know I  would not survive in your arena, and when markets are like this, I wouldn’t have a clue what to do. Is it too late to short? When is the right time to buy back in for a short term profit? What are acceptable losses and profit margins? The work and risk involved seems disproportionate to me, but then I personally know of people who have done very well following this strategy, so I respectfully take myself out of the argument.

Whatever your strategy and goals, if you’re feeling the panic and stress of wondering what to do, I can give you some real, practical advise that is universal: take a moment to get calm and gain perspective. Ask yourself: What is your goal? What are the financial impacts of the decisions you make today? When do you need your money out of the markets? Do you actually believe in the tech and what it can do for the world? Can you imagine where this might be in 5 years time? At all costs, avoid emotion based, irrational decisions that you’ll regret later. Trusting your gut as a component of an investment decision is completely different to hitting the sell (or buy) button in panic.

And never, ever sell in the red.

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