Introduction to Investing in the Crypto Market

Pre-Requisite Knowledge: Nothing

Sources are Always Provided Whenever Possible and Cited Below

The beginning of trading/investing can be a daunting journey. Often times, the warnings are that stocks (and yes this applies even more so to cryptocurrencies) are one of the most risky kind of venture as they have high volatility as well as have the potential to take away everything you put into them. Further, one might attribute high success to people solely within the financial industry. The activation potential for entering the market is high but I wish to share some pointers I picked up over time to hopefully mentally prepare yourself for the spiraling roller coaster that is the crypto and stock market just as I have.

Firstly, the risks are real. You do have the potential to lose all of your money in these kinds of markets. You do have the potential to go into financial ruin and that is precisely why you should not EVER invest any money you are not willing to lose. This is the first safety barrier we must setup to prevent catastrophic losses and any subsequent advice will only build on top of this foundational principle to help you lose less money and hopefully even allow capital to flow your way. With that out of the way, the second most important tool is knowledge of what specific markets you are getting yourself into. I have run into many people who blindly toss their money into random markets that people tell them to put money in: Bitcoin, Banks, Sub-Prime Mortgages anyone? The problem with this is you are not doing anything but gambling at this point. You might as well take your money to a casino and at least get an adrenaline rush with the money being put into sheer luck of the draw. If you aren’t willing to put in at least SOME effort in research and maintenance, I would advise for you to keep your money in a low risk mutual fund. Knowledge can be in the form of learning how to use indicators. It can be keeping up with the news. It can even be understanding how markets work on a fundamental level. Whatever it is, it is a permanent duty that every investor of these markets must take in order to strategically limit losses.

If I haven’t scared you off yet, then let’s move on to the next pointer that builds on the previous one. Nothing is every guaranteed, EVERYTHING is a risk PERIOD. Whatever conscious act you make, whether it’s a withdrawal an analysis or a submission for a bid or ask limit order, it is always a chance of your expected outcome to happen, not a concrete one. I will go through the first two and the third will be left out unless that information is requested.

How is a withdrawal not guaranteed? This one is specifically for the crypto market as it is unregulated, VERY hard to audit and can be exposed to hacks. One or a combination of these factors may cause funds to be completely lost as happened in the case of MtGox, at one point was the world’s largest cryptocurrency exchange causing people to lose millions (1). One can also look at various other cryptocurrency instruments like NiceHash and USD Tether which were hacked very recently. According to statistics, over $15 BILLION worth of bitcoin (and just bitcoin) have been stolen due to hacking as of December 2017 (2). Sometimes compensation is given out, as in the case of NiceHash but that is certainly no guarantee.

I guess the second one on the list can be a guarantee. That guarantee is that your analysis will always be faulty. The caveat to this is that some analysis will be better than others and your objective should be to have the best one that you can independently come up with. There can be an infinite number of factors that affect the price of a given market: government regulations, random investor behavior and investor profiles within a given market can be some which directly influence the movement of a market. All of these possibilities cannot even be listed let alone be computationally tabulated to spit out a given prediction let alone be analyzed by human inspection to understand the market. Since there are indicators available, why not just rely on those? Unfortunately, even those are faulty. Indicators by their name indicates a clue, not a guaranteed outcome. In fact, indicators can provide contradictory information (as demonstrated in another article of mine). How does one deal with that in a precisely objective manner? The answer to that is you don't, but with practice, you are able to master the art better and better to reach a conclusion. The conclusion of what? That something IS going to go up or down? That something IS going to move by a said amount? This is the wrong mentality to have and you will constantly brutalize yourself trying to figure out what you did wrong over and over again if you don't adopt the mentality of risks and chances. Even if all the stars align there is always a chance of things going the opposite direction as seen in examples of my RSI article. What is really difficult about this as a result is that there never is any consistent source of providing a positive reinforcement of the right risks, nor is there a source of negative reinforcement for the wrong risks. Hence, why there is a population of people who should be winning, losing and why there is a population of people who should be losing, winning. However, if you do combine both logical analysis as well as consistent increase in capital over a prolonged period of time, you can bet that you are doing well in the game.

If I haven't lost you yet, congratulations. You are on your way to becoming a successful investor. You will develop your skills and sharpen them to a point where on a macroscopic scale, your risks will be a guarantee. Read lots, follow the news and don't blindly listen to whoever tells you what, including myself. Any comments are appreciated and I wish everyone the best of luck in their endeavors.

(1) https://www.reuters.com/investigates/special-report/bitcoin-gox/
(2) https://www.reuters.com/article/us-cyber-nicehash/hackers-steal-64-million-from-cryptocurrency-firm-nicehash-idUSKBN1E10AQ