Fear and Greed are Brutal in Crypto Investing

Although we’re in a bull market run right now, we’re in a pretty big local dip, and compared to earlier this year we’re feeling a lot of pain. I own a shitcoin that has utterly blown up and destroyed itself after hackers gained access to the project’s network- thankfully it was a very small portion of my portfolio. When I see the red on my CoinStats several times a day it wears me down just a little more each time.  After big crashes, I usually curse myself for not taking more profits out when times were better, but when the highs come, I’m so glad that I held on. To be a better investor, you’ve got to be able to get a handle on those emotions of fear and greed and divorce yourself from the drama, and learn to hang on through the good and the bad. Here’s the good news: crypto is going to change the word and see mass adoption in one or several forms. This ship is headed to space whether certain people, governments, or companies like it or not- but why does it have to be such a rollercoaster ride in the meantime?

To experience the incredible outsize gains that crypto can bring, this is part of the process. 

Why Fear is So Strong in Cryptocurrency Investing

In early 2020 when the Coronavirus pandemic was starting to take hold on the world, there was panic in the markets. Carnival Cruise Lines stock went from a high of $52 in January to a low of $8 a few weeks later, and Delta went from $62 to $19. Bitcoin went from $10,138 to $5,295. Here’s the difference between Carnival Cruise Lines and Bitcoin though: the travel industry has been around for ages, and while earnings were severely impacted by the pandemic, as an investor you knew:

  •  that eventually things would get back to normal, 
  • the company would survive, and that 
  • it’s business model hasn’t changed.  
  • The travel industry has lobbyists and support in government and there is precedent for bailouts

What happens with crypto when panic strikes is different from this. Each and every time a dip happens, there is existential panic about whether blockchain technology will ever find a niche within the global market. All of those FUD headlines and dialogue from people like economist Paul Krugman or gold advocate Peter Schiff start to become louder and resonate more:

“Twelve years on, cryptocurrencies play almost no role in normal economic activity. Almost the only time we hear about them being used as a means of payment — as opposed to speculative trading — is in association with illegal activity, like money laundering or the Bitcoin ransom Colonial Pipeline paid to hackers who shut it down.” -Paul Krugman

“Bitcoin is not a currency, it’s not used as a medium of exchange really, or a unit of account. It’s just used for speculation.” -Peter Schiff

Even writing those just now put doubts in my mind- but it’s a normal human thing to think these things. In fact, I would be more worried if there were zero doubts. “How might you be wrong about this?” a business school professor who was a high ranking official within the NY Fed used to ask us. In a way the fear and doubt helps keep the asset class of cryptocurrencies in check, which is a good thing because if it didn’t we would experience even greater crashes in price, and we could see complete capitulation of some projects that might change the world. This is distinctly different from the stock of DuPont Chemical, a company that’s been in existence for 124 years. The fact that this firm has endured the stock market crashes of 1929, 1987, and 2008 builds a convincing argument that the firm has staying power. Cryptocurrencies just don’t have that kind of precedent.

When it all goes to hell, zoom out. Cryptos have performed incredibly over their short existence. Most dips are just local extrema:

Remind yourself that rebounds in prices are inevitable. There are scores of YouTube videos with technical analysis showing “support levels” by trade volume- . The dips create accumulation opportunities for institutions and savvy investors who can put their animal spirits aside and buy at good prices.

Greed has equal and opposite effects on markets. The human desire for more can make the prices of cryptos go far beyond reasonable fundamentals. Speaking of investing fundamentals, most of them do not apply to cryptocurrencies, adding to the effect that they can get severely over- and undervalued. Stocks are valued [in theory] by the amount of future dividends they can produce and the consistency in which they can produce them. Companies earn profits, and they distribute all or a portion of those profits to shareholders of the company. Because of these simple facts, there are scores of ratios and indicators that cue investors as to what the intrinsic or “true value” of the stock is, like price to earnings ratio (what is the price of the stock relative to how much the company earns?) All of these metrics have been around for decades and help investors value the stock fairly. Cryptos don’t have these metrics, so are subject to wild swings. 

When the crypto market is doing well, I’m usually glued to my phone screen watching the price increases and texting my friends who also invest in crypto. I think about how much higher things could go, and think about the implications of what that would be- paying down my student loans from a super-expensive MBA program, saving more for retirement, or having a nice down payment for a house (I’ve never owned a house before). The truth is that this is the most likely time that I need to be fearful, a take profits in mild increments. In May of 2021 Cardano reached nearly $2.50, and I did remove about 20% of my ADA holdings and put it into savings. So glad I did!

Acknowledge Your Mistakes

The past will be repeated in the crypto markets. If you don’t acknowledge and write down your mistakes and what you’re going to do to fix them, they’ll probably be repeated. This could mean the difference of a lot of money over time, so it’s worth doing. My main mistake with this past crash was having too high of a percentage of my portfolio in smaller cap coins like VeChain, Theta Network, REN, and others. My losses wouldn’t have been nearly as stark if I had kept most of my holdings in the top 10 cryptos. I shouldn’t have been so obsessed with huge returns. Even the largest crypto- Bitcoin- offers returns several times that of the stock market. The losses of the top 10 cryptos by market capitalization were far less than the smaller cap coins. A very small number of people (<1%) make gains on useless meme coins like Shiba Inu or Doge. Memecoins exist for no other reason than to make their founders rich, and there isn’t much in the way of fundamentals to keep their prices up. Moving forward, I will stick to mainly larger cap coins and maybe a handful of smaller caps I truly believe in (I still believe in Theta and VeChain!) and hold on over time. Less work for me, and more gains in the form of fewer losses!

Lastly, one thing I’m trying to do more of is attribute my investing wins to luck rather than skill. I’m a millennial who works in the tech sector and I’m around a lot of people who invest in crypto- so any gains I might make from it is attributable to my situation and not necessarily my ‘genius’ in seeing that cryptocurrency will change the world. If someone takes a true look at blockchain and its applications, I’m sure most of them will reach that conclusion.

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The Fear & Greed Index

  • Today Neutral 51
  • Yesterday Greed 61
  • One week ago Neutral 51
  • One month ago Fear 27

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