Chris Dunn recently uploaded a video which covered 50 cryptocurrency and investing lessons from his last 5 years in the cryptocurrency space. As always, his content is excellent and I would implore you to watch it (and subscribe to his channel) regardless of whether you’re a beginner or someone that has been trading and/or investing in cryptocurrency for some time. In this short post, I’m just going to pick out my five favourite lessons that he touched on.
Remember: I’m not a financial advisor and this isn’t investment advice. Check out my full disclaimer here.
(Lesson 3) There’s a big difference between a trade and an investment.
I’ve somewhat mentioned this in a previous post I wrote here, but it is an important distinction to make. Trading is a short-term approach where you’re looking to maximise your returns and beat those returns achieved by just holding cryptocurrencies. In contrast, investing is a long-term approach where you purchase and hold cryptocurrencies without regard for the short-term fluctuations in price. You can read more about the distinction here.
Most people would probably be better off investing the majority of their funds for the long-term into cryptocurrencies which have solid fundamentals, and then allocating a smaller fund to swing trade with (if they’re set on it). That’s not investment advice, it’s just something that’s been working for me.
(Lesson 10) The best way to profit in any market is to find something you think has big potential early (before the general public catches on), and invest assuming you’re going to lose 100% of your capital. It’s the “angel investor” approach.
This lucrative (>1000% returns) long-term approach is simple in theory, but difficult in practice. There are over 1350 cryptocurrencies listed on CoinMarketCap. The majority of these are, no doubt, absolute trash (i.e., ‘shitcoins’). The same is true for upcoming ICOs – the majority of them will not survive and thrive in the long-term. Wading through the bullshit to find the real gems that have long-term potential is time-consuming. By the time a cryptocurrency is being discussed on forums or chat rooms, you’ve probably already missed the massive upside potential.
(Lesson 35) Don’t trade with money you need for living expenses. It’s called “risk capital” for a reason.
This seems like common-sense, but people are leveraging debt (e.g., taking out mortgages or racking up credit card debt) to invest in cryptocurrency and chase the high returns available. While this has worked for some speculators (see this Reddit thread), it’s not that sensible. If you are leveraging even a small amount of debt (e.g., credit cards), do consider worse-case/best-case scenarios and your entry/exit plan.
(Lesson 42) Learn to think like a contrarian. If you’re someone who needs to have your opinion validated by everyone around you, then trading and investing isn’t for you.
Here’s a quote from Henry Ford:
“Thinking is the hardest work there is, which is probably the reason why so few engage in it”
Challenge the status quo and come to your own conclusions. The earliest investors in bitcoin were contrarians who saw the potential, despite the negative press, of this amazing technology. It’s not comfortable and it’s not easy, but it pays to think for yourself and lead the herd.
(Lesson 45) 90%+ of cryptocurrencies will eventually go to zero. Invest accordingly.
I mentioned this earlier, but it’s a good one to end on. The majority of the cryptocurrencies available won’t make it. They’ll just crash and burn. If you’re making short-term trades, this won’t matter. But if you’re investing in cryptocurrencies for the long haul, do carefully consider the projects you’re throwing your money at. Even amongst the top 100 cryptocurrencies, there are projects which won’t survive in the long-term.
Anything to add?
What’s the best lesson you learned from trading or investing? Comment below and let me know!