I know I’ve been talking about the market more than usual lately but I think it’s an important topic in these turbulent times. Some of you may have been around for a while and know how the show goes but I speak to a lot of people that have only been in crypto for a couple of years so they aren’t used to the pendulum shifts that tend to happen in the crypto markets.
Some perspective. In 2017, after ETH ran up from $10 to $420 over 6 months, it then fell ~70% to $130 in 28 days. It then took ETH 133 days to get back to $420. This all happened during a bull market. Eerily similar to what’s happening with DeFi tokens right now.
October 30th 2020
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I posted the tweet above yesterday because I was looking back at previous market cycles and I didn’t realise just how brutal of a drop ETH went through in 2017 after rallying so much. I was around for this entire cycle but it didn’t feel like a ~70% drop to me and I eventually figured out why – it was because I wasn’t on Twitter and my only source of social sentiment was the /r/EthTrader daily thread. I was basically unaware of what most people were thinking about the market so the only really strong perspective I had was my own. I actually wrote one of my first crypto pieces about the first 2017 ETH run up (I think it’s aged pretty well too).
I think the constant stream of thousands of people’s thoughts and views on Twitter (and social media in general) tends to warp our perspectives on certain things. This isn’t really a novel thought or anything new and it applies to many different things outside of crypto (as I’ve written about before) but I wanted to focus on how it applies to crypto and + the markets more broadly. There are many different types of investors within every market – you have short-term players like traders, long-term players like fundamental investors, short and long-term players who use a small portion of their total portfolio to trade on riskier assets (in order to increase their holdings of say ETH or BTC) and finally, you have the whales who have the ability to move markets all on their own (if they want to, that is).
Now, a day-traders perspective is mostly from the short-term side of things – they aren’t really looking at fundamentals of different projects – they are simply playing the charts. Conversely, a long-term investors perspective is more fundamentals focused and they may only look at the charts out of curiosity (I’m someone who tends to do this a lot). These two perspectives are diametrically opposed – the day-trader wants to make profits on a short-term basis regardless of fundamentals whereas the fundamentals investor doesn’t care about the day to day moves and focuses on slow and steady growth over years.
One of the best things you can do for yourself is decide what kind of investor you are before you put a lot of money into the crypto markets. Then, you need to make sure that you keep the perspective that you’ve chosen for yourself and hone in on it – don’t just chop and change constantly because that’s how you’ll end up losing money. If you are a long-term investor, then you shouldn’t pay attention to the short-term price moves – especially if the fundamentals of the project are still strong. Of course, not every project will succeed and if you feel that it is failing then you may decide to sell your position.
On top of all of this, it’s good to keep in mind that crypto is the most volatile asset class in the world. It’s extremely reflexive in both directions and will always go up or down more than you think it will as there are no “circuit breakers” or protections in place to stop assets from falling too hard. Even the large cap assets like BTC and ETH are not immune to this – BTC was headed for $0 due to cascading liquidations on BitMEX – the only way to stop it was for BitMEX to halt trading (something a centralized exchange won’t normally do). On Ethereum decentralized exchanges, there is no halting of trading and the long-tail of ERC20 tokens can quite literally fall 90%+ in a day (or even go to 0).
Stay safe, friends.
Have a great weekend everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.