Nick’s Note: The entire cryptocurrency market cap is down 66% from the all-time high of $830 billion in January… including bitcoin, which is down 69% from its record high of nearly $20,000. The sell-off has many crypto investors worried.
PBRG guru Teeka Tiwari says it’s common for investors to second-guess their decisions when volatility hits. Below, Teeka shows you how to rationally deal with those emotions.
By Teeka Tiwari, editor, Palm Beach Confidential
As the price of crypto assets plummet, many of the new “investors” in the space are getting badly hurt.
I put “investors” in quotes because much of the new money that came in since November 2017 appears very uninformed.
Instead of studying each project in detail, I’m reading stories about people who rushed in on what “sounded cool.” Instead of taking a measured approach on position size, reports suggest they borrowed against credit cards and took massive bets.
These poor folks are going through what famed psychiatrist Elisabeth Kübler-Ross called “The Five Stages of Grief.”
They are: denial, anger, bargaining, depression, and acceptance.
I’ll go over each…
The Five Stages of Grief
Stage 1: Denial. Market starts tanking: “This is not happening. Everything is fine.”
Stage 2: Anger. Market drops even more: “How can this be happening to me?” “Why is everyone else so stupid?” “Blockchain is the future.”
Stage 3: Bargaining. “Just let me get one more rally so I can get out at even, and I promise I’ll never speculate this big again.”
Stage 4: Depression. “Oh my god, my wife/husband/boyfriend/girlfriend is going to kill me.” “I’m a failure as a human being.” “I wish I were dead.” “My life is over.”
Stage 5: Acceptance. “Let me at least salvage something from this market.”
Stage five ends with them selling their investments at depressed valuations and
swearing off cryptos for good.
How to Deal With the Five Stages
If the above example rings true for you, then please pay close attention. You’re not an idiot. You just got swept up in the euphoria of the market.
Yes, the blockchain and crypto assets are the future. But as with any new game-changing leap forward—whether it was the railroad, automobile, or the internet—it will always go through boom and bust cycles.
The good news is we are still very early in the blockchain boom cycle. What’s great about being early is the market will bail you out of having bad timing.
Here’s what I mean by that…
If you look at the tech boom that spanned 1990–2000, even if you had the worst timing and bought every market peak from 1990 to 1998, you would have still made money.
Since I started recommending crypto assets in April 2016, I have always warned my subscribers that crypto assets are more volatile than any asset class they’ve ever traded.
Below is a history of just how volatile bitcoin prices have been since 2011. (In the chart further below, you’ll notice that these massive drops barely register a blip now.)
Down 94% June–November 2011 from $32 to $2
Down 43% June 2012 from $7 to $4
Down 80% April 2013 from $266 to $54
Down 85% November 2013–January 2015 from $1,166 to $170
Down 40% September 2017 from $5,000 to $2,972
Down 61% January 2018 from $19,206 to $7,500
To combat this volatility, I’ve always instructed my subscribers to use small, uniform position sizes.
Our rule of thumb is if you’re a small investor, place no more than $200–400 per position. If you’re a big investor, then you can bump that up to $500–1,000 per position.
The key rule is never risk more money than you would be comfortable losing. Another big rule is to never borrow money to fund a crypto investment.
Having so little money at risk gives you the staying power to navigate the massive volatility inherent in this exciting new asset class.
As you can see from the chart below, bitcoin has been volatile… but making money in it has been quite easy.
All you’ve ever had to do is put on a position, be patient, and ignore the volatility.
For the last two years, many of my subscribers have done just that and have become millionaires in the process.
What’s Next for the Market?
It’s tough to know how long this down-phase will last. My best guess is until May. That’s when the big industry conference called Consensus is scheduled.
The Consensus conference has typically been a period when we’ve seen a lot of new big money enter the space. In the coming days, I’ll go into what I think will be a big announcement at Consensus that will drive the crypto market’s next up-phase.
For now, be patient with the market. And remember how the tech space acted between 1990–2000. Every pullback—no matter how steep or how long—was followed by higher highs. I expect the same to be true in cryptos for many years to come.
Know that we’re still early and all you have to do to make a ton of money is position-size right and just ride out the volatility.
Let the Game Come to You!
Editor, Palm Beach Confidential
P.S. Are you experiencing any of the five stages of grief? If so, let us know how you are coping right here…
Crumbling Infrastructure: Last month, we told you that steel and coal companies would get a boost from President Trump’s plan to spend $1 trillion to upgrade U.S. infrastructure. Well, he may need to spend more than that. According to a recent study by the American Road & Transportation Builders Association, 54,259 bridges in the U.S. are structurally deficient. You can see which bridges are structurally deficient in your state by clicking here.
World Economy Still Growing: According to global market research firm IHS Markit, manufacturing in the euro area grew at one of the fastest paces on record. The London-based firm says solid global trade and a recovering labor market are supporting the euro bloc’s economy. This is a sign that the global economy remains strong. And that’s good news for the market…
U.S. Labor Market Remains Strong: Meanwhile, the U.S. job market is solid. According to the latest Labor Department numbers, 200,000 more people got jobs in January. That’s 20,000 more than initial expectations. On top of that, the average employee made 2.9% more in wages than the previous year. That’s the fastest increase since June 2009—when the U.S. emerged from the Great Recession. The U.S. worker is doing better than ever. And that is also bullish for the market.
IN CASE YOU MISSED IT…
By using an unusual “key” strategy, this gentleman was able to generate millions… and retire two decades early. The most surprising part? He reports it’s very, very easy to do.
Click here to see his secret key…