Author's note: People new to trading enter the crypto-market constantly, and the amount of information they must digest to make sound and informed decisions can be overwhelming. Here is the fourth in a series of articles based upon my own experiences and study to help the inexperienced and under-educated get off to a good start trading/investing in crypto-currencies.
Disclaimer: Nothing I write in any of these articles is financial advice of any type. Be sure to do your own research and thoroughly understand the assets you're investing in and how various trading mechanisms operate before deploying any capital.
History May Not Repeat, But It Does Rhyme
While there are some fundamental differences between the Bitcoin bull run/alt season we see beginning now and the one we experienced in 2017, valuable lessons from that experience three years ago may prove beneficial in the months ahead and beyond.
Each novice has their level of skill in trading and knowledge they bring to the cryptocurrency markets. Often, they arrive with dreams of racing sports cars on the moon dancing through their heads but lack any good idea of getting there.
The types of returns needed to fund such a lifestyle are possible in crypto. However, for those who lack adequate trading skills and knowledge, the odds are so slim regarding achieving that level of success, their dreams may as well remain a part of the frozen lunar moonscape.
Having heard stories about the bull-run that took place in late 2017 and continued into early the next year, a question firmly on newcomer's minds is often "When's the next alt-season?"
II participated in the crypto-market of 2017-2018, and, while I was a complete novice, I gained insights I have found valuable through that experience. Here are some lessons from that time that made a deep impression on me & which had and still have a significant influence on my trading.
I Was In The Right Place, At The Right Time
After being aware of Bitcoin's existence for several years, I became interested in studying trading/investing in cryptocurrency in the spring of 2017. I had, as the saying goes, tumbled down the old rabbit hole, never once looking back.
During the months leading up to December 2017, I had purchased varying amounts of different altcoins, not entirely without a plan but not thoroughly knowing what I was doing either. My thought process had been to "diversify" my crypto portfolio by holding a certain percentage of "the big two" BTC and Ethereum and making up the rest with various altcoins of differing stripes.
I had latched onto the basic concepts of fundamental analysis and began reviewing various altcoin projects to vet their worthiness. I read news articles, looked at websites, registered for Reddit, and combed its pages.I joined numerous Facebook crypto groups and signed up for Twitter; my crowdsourcing of crypto investment advice reached a fever pitch as I daily looked at the price action of altcoins and BTC.
I watched numerous videos by any number of crypto YouTubers, a few of whom knew what they were talking about and whom I still follow; most of them didn't have much more of a clue than I did about what was going on. For whatever reasons, I selected a handful of altcoins that I purchased and began sailing the seas of crypto trading, blissfully ignorant of what lay ahead.
One of the coins I purchased was Verge, known by the ticker symbol of XVG. I'm aware of what had attracted me to it: XVG was/is a "privacy" coin, which meshed nicely with my overall political point of view that The G has no business getting involved in the private affairs of its citizens, including their finances.
I bought XVG at various times and differing prices, dollar cost averaging my way into the position at 120 sats. My records are missing from those days (more on this later); it's fair to say I had bought a fat stack of XVG and was quietly minding my own business when along came Mr. John McAfee.
Thanks For The Help, John!
We're not taking time here to dissect the nuances regarding what McAfee or anyone said about XVG or anything else in December of 2017. That would be material for another article unto itself. Just before the middle of the month, McAfee (well-known at the time for shilling altcoins for a hefty fee) spoke glowingly about several privacy coins, including XVG on Twitter. Shortly after which, Verge's price skyrocketed from just under a hundred sats per coin to nearly 2000 sats in a matter of about a week and a half.
Buy The Ticket, Take The Ride
What ensued in the weeks and months that followed were events that I won't ever forget and formed the basis for the following lessons.
- Take profits. It's not a coincidence that I selected this for number one. If this was the only thing I'd learned, the experience was worth it for this alone. Instead of selling my position at a profit of 1860 sats per coin when it was close to the ATH, I wanted more. My desire was an even 20X return at 2400 sats per coin. Now, I shake my head and smile at my naivete. Here lies another issue: I lacked the guidance a written trade plan provides. Without such a roadmap, I was adrift, lost as one of the unfortunate travelers in the Twilight Zone's old TV series. This part of the story has a somewhat happy ending: While I missed out on the maximum amount of profits I could have earned, I came to my senses in time to sell off most of my XVG for a substantial return that April when the price spiked again. The fact that much higher rewards slipped through my grasp is the toughest lesson out of all this. It is only some of the tuition I have paid to The College of Crypto Trading.
- Dumb luck counts, too, aka: Be in the right coin(s). While it was purely a matter of chance that I bought XVG & McAfee tweeted about it; this shows the value of being in the right coins, no matter how you get there. Under the right circumstances, even someone as green as I was then can come out on the profitable side of a trade.
- It's fun while it lasts, but it doesn't last long. While there can be some debate on specifics, such as precisely what makes up an alt season, that's a discussion for a different day. Looking at the XVG/BTC chart from that time and using the Fibonacci Retracement Tool, my view is that XVG's "alt season" began on December 3rd, 2017, ended on January 16th, 2018, when the price action had retraced to the .618 level. That's right around six weeks, by anyone's measure, merely a blip in time. Even if one includes April's price spike, we're only looking at a span of a few months. Nearly all of the time you spend involved in trading, you will be looking forward to another alt-season, not experiencing one. Plan accordingly. Put your new-found knowledge and skill to use by working the market as you find it, not as you wish it to be. If you choose to believe anything, you can believe this: should the next alt-season be anything like 2017's, there will be no doubt about what is taking place as it is happening.
- Dopamine is real, do not underestimate its effects on your thinking. The jury may be out on what role Dopamine plays with pleasure in the human nervous system, but after having lived through the winter of 2017-2018, I'll testify to the fact that something was very different with my brain chemistry in those days. I had an automatic spring in my step; nothing could get me down or stand in my way. I was a genius, cryptocurrency was the ticket to a new life, and it was happening sooner rather than later. I do not doubt that Dopamine, along with my inexperience, were significant components in my not taking profits at or near the ATH as any trader worth his salt would do. The feeling of invincibility, of being "eight-foot-tall and bulletproof," was real and a lot of fun while it lasted, but as I noted above, it is as fleeting as breath into the wind. One must guard against the very real effects of Dopamine and its influence on one's thinking.
- It is more fun when you know what you're doing. Since then, I've devoted a large part of my life to studying cryptocurrency, trading, and market psychology. While I consider myself to have still much left to learn in my development as a trader, I also know that compared to what I knew then, I've traveled a far distance already. Everything that I have learned about trading and crypto over the past couple of years has served to deepen my appreciation for just how complex and nuanced trading can be. The more I learn, the more I can appreciate trading on an increasingly sophisticated level, enhancing my enjoyment of this business.
- Even if the exact differences are unknown, no two moments in the market are ever the same. The explosive growth in cryptocurrency prices that occurred in mid-December of 2017 was undoubtedly unexpected, at least by me. It was a time when, as one crypto YouTuber put it: "a blind monkey could throw darts at a dartboard and pick winners." The influx of new retail money led directly to breathtaking price increases and those who were savvy enough to take profits cleaned up on The Herd's dumb money. With a multi-year crypto-winter looming dark just beyond the horizon, HODLer's who bought at the top found themselves hanging onto rapidly depreciating assets. What we are witnessing in the fall of 2020 is setting the stage for a similar rally fueled by retail speculation, but it hasn't yet arrived. The increased interest we've seen so far has followed news of billionaires and institutions purchasing BTC or making it readily available through services such as PayPal. While at the time of this writing, we are within a few thousand dollars of the ATH for BTC, after we move north of $20K, we will witness a new influx of retail traders who will push the price higher yet.
- Everyone should take security very seriously, including the need for a hardware wallet or other cold-storage method for their cryptos. During 2017-2018 I stored a small amount of my crypto on a desktop wallet with nearly all my assets sitting on an exchange. Which exchange was it? Cryptopia. Timing is everything. The Cryptopia hack is why my records from that time are incomplete. Thinking about what might have happened had that hack occurred earlier gives me an unsettled feeling. After I finally sold off my XVG, I invested in a Nano Ledger S and highly recommend everyone involved in crypto DYOR and find a quality hardware wallet to purchase.
The alt-season/bull run of 2017-2018 was surely notable, and if you were around for it, you'd probably have war stories to tell your grandkids. It is easy to focus on the phenomenal gains and ignore the darker aspects. One negative effect was the number of inexperienced traders/investors mentioned earlier who bought BTC or altcoins near their all-time highs and saw their investment drop off a cliff as those assets plunged in price. Many of those people may never be back, and their friends aren't likely to stick their toes in the crypto swimming pool to test the waters anytime soon, either.
The Last Lesson
Perhaps here is the most important thing I learned from 2017: waiting, wishing, and wondering about the next alt-season is not a sound way to use one's time and effort. Take that energy and opportunity and explore aspects of trading that you haven't studied yet. If you're serious about becoming a crypto-trader, there is an entire lifetime's worth of work ahead of you; there will never be a better time than now to get to it.
As I continue producing these articles, I hope you will come back for more. Up next: Part 5: Failing To Plan = Planning To Fail