Regardless of what the institutions are doing, retail investors control this market.
In this post, we'll discuss the mindset of retail crypto investors. Why and how they buy and sell crypto.
And how they can refine their investment strategies to be more effective and profitable.
Because after all said and done, we're all in it for the money, and also, you know, for the technology.
Disclaimer: This post is not based on any organised research but my own knowledge and experience.
Ok! With that out of the way, let's get started.
Who are retail investors?
Me and you! The small players.
Retail investors are individual and non-professional investors who buy and sell cryptocurrencies usually in small amounts.
For the purpose of this discussion let's take a small amount to be under $1 million.
1. In it to create and build wealth
There are three basic reasons why people make investments.
To create wealth
To build wealth
To preserve wealth.
Retail crypto investors are mostly in it to create or build their wealth.
As a result of the above, they're mostly drawn to high return offers regardless of the risks involved.
And the majority who come into crypto sees it as an opportunity to become rich much quickly compared to traditional investment opportunities.
Though that is mostly true, the risks are equally magnified.
And it's not hard to lose all or most of one's money to scams, hacks, or whales manipulations.
2. Mostly ignorant of the market
"The [crypto] stock market is a device for transferring money from the impatient to the patient." - Warren Buffett.
Retail investors mostly lack the knowledge and experience to effectively and efficiently navigate the highly volatile, heavily manipulated and unregulated cryptocurrency market.
They do not understand the dynamics of the market and as a result, most end up as victims of it.
Losing their hard-earned money to sophisticated institutional and experienced professional traders.
The basics of good crypto investing are:
Buying the right cryptocurrency and
Never sell it regardless of the short term price movements.
But retail doesn't know what the right cryptocurrencies are.
They can hardly analyse the market to understand why what's happening to price is happening.
As a result, they tend to follow the herds and ride with the tide.
And we know that if you do what the majority of people are doing you're already on the losing side.
Learning basic market research and analysis skills is paramount if you want to make money in crypto.
And most importantly, sticking to what you know and avoiding the hypes is important.
As Buffet wisely said...
"Never invest in a business you cannot understand" ~Warren Buffet
Having a solid knowledge and understanding of the projects and cryptocurrencies you invest in will help you stay strong and not be easily shaken out by the whales.
Whales will from time to test the weak and strong hands. Collect money from the weak and make themselves fatter.
Don't feed the whales with your dollars.
If the project is still being developed and the team is solid, HODL through every dip the whales bring your way.
And soon enough you will be riding on their back to the moon.
Don't be that weak, buy high sell low, emotional investor. That's exactly what the market (read: whales) wants you to be.
3. Wants to buy everything
"Cast your bread upon the waters, for after many days you will find it again" ~The Bible
My friend, the above verse is mostly applicable to kind deeds and not investments.
Don't go about spreading your tiny capital across tens of shitcoins in the name of diversification.
I know that's what your favourite influencer and how to become a billionaire writer said you should do but don't!
Because the investment strategy that works for a millionaire will hardly work for someone with a few hundred or thousand dollars to invest.
And considering the high fees especially on Ethereum you're actually losing money buying or trading multiple tokens with small capital.
Does that mean I shouldn't diversify?
What I am saying is, be strategic about your diversification.
Let's assume that my diversification strategy is:
Invest in a maximum of 10 (or whatever number you choose) different cryptocurrencies.
Start each investment at only $500.
Now I have $1,000 that I want to invest in crypto.
First, you know I need to properly research what cryptocurrencies are good for me to buy and HODL.
Having satisfied the above requirements, I would split that $1,000 into two.
And put $500 into two different cryptocurrencies with solid fundamentals that I have decided to invest in.
The plan then is to wait for as long as it takes for my investment to double (X2).
Then remove $500 from the profit and put it into another cryptocurrency with equally good fundamentals.
If I have any extra cash to top up my crypto investment it will follow the same plan. Which is, put $500 into one cryptocurrency at a time.
Once I reach my maximum of 10 different cryptocurrencies, each with $500 starting capital, I will increase the capital per coin to say $1000.
So any new cash I want to invest will be to top up existing invests with an extra $500.
Or remove profit from any of the coins that have grown above $1000 and allocate it to another that's yet to reach this threshold. This is called a portfolio rebalancing.
There're a million and one ways to structure your portfolio, but the main idea is to be strategic about it.
5. No investment plan or strategy
“If you fail to plan, you are planning to fail” ~Benjamin Franklin.
Like seriously, how could one hope to survive and remain sane in this crypto jungle without a plan and strategy?
It doesn't mean because you have a plan and some strategy that you're not going to fuck up sometimes.
But it does helps you easily know where you're wrong when you're wrong. How you're wrong and what you can do better.
Rather than allow the market to toss you in every direction it chooses.
There's a lot of manipulations and misinformation out there. And the only way to stay above it is to know what you're doing.
So sit down and develop your crypto investment plan and strategy. No matter how basic it is.
So that if someone calls you tomorrow and asks you: what's your crypto investment plan?
You will have a prepared answer to give.
6. Too dependent
All the information you find out here, including this post is pure data.
And you need to take it in, digest it, filter out the sense and the nonsense. And pick what will serve your unique needs and preferences.
Either out of laziness or nonchalance, retail investors hardly want to use their own brain in coming to their investment decisions.
Of course, there're reliable people and sources you can trust to guide you aright.
But even when you follow their leading, you should understand the entire reasoning behind and potential outcome(s) of the action you're taking.
Because regardless of how it turns out, only you are responsible and liable for the outcome.
Not every good strategy will work for you.
And that someone made it through one strategy, doesn't necessarily mean that if you do the same thing you will get the same result.
Understand the variables that influenced the results they got before you plug your head in, trying to achieve similar results.
Just as you would try to know and understand the school to attend or enrol your kids, the Company that you want to work with, and the partner you wish to settle down with.
That is the same way you must exercise due diligence with your crypto investment.
Imagine you're starting a new Company? How much personal thought will you put into every process. I guess it's a great deal.
Do the same with your crypto investments.