So you have finally gone and opened a Crypto account and you are feeling your way into it. You think you are doing ok and then suddenly one of your investments goes completely pear-shaped!
It’s a disaster of momentous proportions, the four horsemen of the apocalypse have arrived in your wallet. You have tried Investment halving and misread the market as your Crypto-value continues to plunge.
Fear, Uncertainty and Doubt (FUD) take over and you are close to jacking it all in.
What should you do? Cut your losses?
There is something else you can do. Convert to DAI and hold. DAI is a stablecoin and although it experiences some movement it is in line with the USD so in the case of a price nosedive this shift will at least stablise the your wallet value. Especially if there isn’t a logical choice of alternative currency to shift to.
Am I just cutting my losses?
Yes and no.
It really depends on what you do next. There are two options which answer both of these questions fully
OPTION 1. You hold in your DAI wallet until the original currency hits rock bottom. Then you convert your DAI back to the given currency. You should find that you end up with more Crypto than you converted to begin with. In this case you are not cutting your losses but you are playing the original currency off itself after stabilising it. This works according to the same principles as I discussed in It’s not all about Money and follows the same business principles as Marginal Gains which I also discussed in a previous post.
Let’s have a look at how that could work using an arbitrary (non-existent) currency that I will call ABCX. In this example I have also used the principle of halving to pull things together and give a full demonstration of how it works. I have used easy figures as while the maths is important, the numbers will be easier to follow. Be aware that in this example I have not included any margins which should be factored into any calculation.
* Please note new capital introduced means capital from your reserves. I am not suggesting introducing more and more capital to cut your losses. Please read more about Investment Halving here to fully follow what I am talking about.
After 15 days, in the above example, the currency fell to £1.35 and had probably bottomed out so when you reconvert to the original, in this case, you will end up with more of that currency than you started with.
There is some risk to this strategy because the currency may have already bottomed out and you run the risk of losing even more on the margin.
OPTION 2. You wait and then go for a currency that will turn out to be a good investment. In this case you are cutting your losses, but in the meantime you are stabilising. If you are confident in your decision miss out the DAI stage. In this case you will record a loss, but if your next investment is wiser you are at least beginning to claw back.
Of course the other possibility is to hold and wait for the trend to turn and for the currency value to go back up above and beyond what you originally paid for it.
Be warned if you still have your currency held in DAI when the trend turns it is probably (not been there myself) the worst and most frustrating scenario you can face.
This is just another tactic to have in your arsenal but nothing is better than researching the market. I am not spamming on here, but Publish0x is full of excellent articles so really do take the time to read them.
I am learning all the time
If this is the first article you have read in my series on Tactics for Newbies please feel free to read my others.
Also consider reading Investment Halving, which wasn’t specifically part of this series but may be of value to you.
Thank you for taking your time to read this.