2016 and 2017 were an extraordinary couple of years for crypto investors. Bitcoin, the most famous crypto currency, went from $350 to $20,000. Ethereum meanwhile went up over a thousand times – from $1 to $1,400. Some obscure altcoin that neither you nor I have ever heard of – and never will – went up by even more. The gains were extraordinary.
It’s easy to say now, in hindsight, but we will probably never again in our lifetimes see such an opportunity to make that much money that quickly.
Then it crashed. From high to low bitcoin fell about 85 percent – and bitcoin was one of the better performers. Ethereum fell around 95 percent. And as for those obscure altcoins, I’m not entirely sure many of them even exist anymore. The unravelling took less than a year.
It’s easy to say now, in hindsight, but we will probably never again in our lifetimes see such an opportunity to lose that much money that quickly.
We tend to think of manic depressives as people who are depressed all the time. In fact they are prone to wild mood swings: periods of extended elation followed by periods of depression.
Bipolar is the term psychologists now use. Crypto is probably the most manic investment sector ever known. It really is bi-polar.
But here’s the thing. Even though bitcoin fell by 85 percent in 2018, the price at which it landed – around $3,500 – was still ten times higher than where it was at the beginning of 2016. Ten times your money in a couple of years is pretty good going, I’d say.
Ethereum’s landing point was a hundred times higher. Hundred baggers don’t come along very often.
As for the obscure altcoins – some of them are still there, doing great, though many have disappeared.
To bitcoin veterans, or OGs as they are known (original gangsters) the crash of 2018 was nothing new. Though the crash got a lot of coverage in the mainstream media, it was just another “crypto winter”. These bear markets come around quite frequently in crypto. 2018 was maybe the 7th correction of 70 percent of more since the first bitcoins were mined 12 years ago.
Each correction, however, goes back to a level higher than where the previous bull market began. This is why crypto culture has developed the ethos of HODLing. Back in 2014 – during another crypto winter – an investor was expressing his frustration at the state of the markets on a chatboard, but nevertheless declared that he would hold on through.
In his passion, he misspelt hold as HODL, but, to show his strength of mind, refused to go back and correct the typo. So did the idea of HODLing catch on. Even the most brilliant trader in the world with the most powerful computer trading algorithms would struggle to outperform the simple trading strategy of HODLing crypto. Buying and holding in a bull market works.
Over the longer term, even with these biennial 70 percent+ corrections, crypto is in an extraordinary bull market.
Bitcoin is a new technology. New technologies, whether DotCom or groovy electric cars or 3d printing or trains in the 19th century, always seem to attract investment manias. But crypto is a new technology whose function is to be money. It’s about as bubbly, as manic an investment class as you could ever design.
We have just been through one of those periods of elation. From the “Corona crash” of March 2020 to its high a fortnight ago, bitcoin went from $4,000 to $42,000. Ethereum went from $100 over $1,400. I don’t even know what the latest altcoin is called to look it up.
Then crypto has a bad couple of weeks. Bitcoin lost $10,000 in a day. That was its biggest daily correction ever. As I write it stands at $32,000 – it’s fallen 25 percent. But do you know what? It’s still up 10 percent in 2021. Year to date it is beating pretty much every other asset class.
So are we in line for another crypto winter in 2021? I wish my foresight was as good as my hindsight. But I can say this. In the crypto bull market of 2016 bitcoin had at least eight pullbacks in the 30 percent region. I would say in this one we have so far only had two – and that included the March Corona panic. Volatility is the norm, nor the exception, in crypto.
We will probably see at least three more 30 percent+ corrections this year, but bitcoin will still end the year higher than where it began.
If we get one of the more monster 70 percent+ corrections, well that will mean one of two things. Either crypto will have gone through one of its monster bull markets first, so the falls will come from much higher levels, or there will have been one of those global liquidity panics that occasionally come around, such as we saw with Corona in March. Or both.
There is no doubt that at $42,000, bitcoin was overheated. So I’m not surprised it has had one of it’s typical shake-ups. But it’s bitcoin. It frequently boils over. Hot in bitcoin is equivalent to lukewarm elsewhere. I don’t think we have had quite enough heat yet to warrant a correction of the scale of 2018. That is just one man’s opinion. You might think differently.
The best way to deal with it has repeatedly proven to be to allocate whatever portion of your portfolio you want to allocate to crypto, if any at all, and then to HODL. Make sure the majority of that allocation is to bitcoin, have a little ethereum, and if you are feeling really racy, spicy it up with a couple of altcoins, though heaven knows what they are called.
I notice that Bahrain-based cryptocurrency exchange, Rain, has just raised $6 million, including backing from Coinbase in the US. Somebody clearly thinks there might be an appetite for crypto in the Middle East.
Bitcoin: the Future of Money? by Dominic Frisby is available at Amazon and all good book stores with the audiobook at Audible.
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