Back to the Basics of Cryptocurrency: Truths to Survive the Times

A common mistake in this business is worrying about how much your investment is worth NOW. I try not to do that because I’d go crazy, especially in this market. When I think back to my now prior analytical environment, my main measurements surrounded only the day-to-day coin values relative to USDT.

The Bot Guy
The Bot Guy
June 2, 2022

Even the most steadfast, disciplined trader/HODler has insecurities in the current market climate. For me— and I’m sure many others— our heads have been reeling, and we’ve lost sight of some basic truths regarding all-things-crypto.

Therefore, I’ve taken some time to do a mental reset. For starters, I’m trying to remain faithful to my theory: these bags are all little savings accounts.  Admittedly, however, it’s terribly difficult to heed my own words after seeing some of these bags dwindle in USD worth.  

Here’s what my reset concluded on this matter— the truth is that nothing changed except the value as measured in another currency.  The BTC bought at $40k is the same as the BTC bought at $60k, the same as the BTC bought back when it was only $100.  I realized that these little bags aren’t going down in my perceived value, and they certainly aren’t wasted investments as my time horizon hasn’t elapsed yet.

My original investment thesis hasn’t changed either. These were lots of small investments created with the possibility of a long-shot big hit, and I knew many of these purchases would go to zero. So, why do I feel the sudden need to sell them all at a considerable loss?

A Common Mistake

A common mistake in this business is worrying about how much your investment is worth NOW. I try not to do that because I’d go crazy, especially in this market. When I think back to my now prior analytical environment, my main measurements surrounded only the day-to-day coin values relative to USDT. But what I should have been looking at is measuring their relative performance in a cost basis valuation— meaning that I should focus on assets above the prices I paid for them—- this is known as my Cost Basis.

By default, everyone gets this information in their portfolio manager, so no one really thinks about it. It seems silly that an experienced crypto dude like me didn’t think about my cost basis sooner. It’s a common, logical concept that I’ve slighted for too long, but there’s a reason. I ignored my cost basis because, in crypto, the logistics to accomplish a proper measurement and reporting system are very different than in a traditional IRA or stock portfolio. I figured it was nearly impossible to establish a system that encompassed such depth of data, and it probably was back then. But now, I have the time to invest in this market, and I hope I can realize this simple goal.

The Importance of Growing Quantity

When I first got into crypto, I invested and sat on a mountain of crypto with nothing to do with it.  I watched as the USD value decreased over an excruciatingly long bear market, and instead of worrying, I learned about staking. So, I properly staked some of my coins like ATOM, VET, XTZ, and many other bags as early as I could. I earned many new coins during that time, and several of my early staking contracts are still in effect.

Staking is a way to grow your crypto quantity, and it’s honestly the safest way to earn in any market though the returns are sometimes much smaller than what a trader can make.  I realized with this strategy that when you can add new coins to your bags, you aren’t just earning once; you earn twice. Let me give an example.

Say I staked 100 ATOM for a year at 10% APR.  I’d earn 10 ATOM for that year, giving me 110 ATOM altogether.  This gain is welcome and beneficial, but it’s dwarfed by the potential growth of the new 10 ATOM over the next ten years.  Realize that this asset is worth $9.43 at this time.  This means that the gain in one year could be considered $94.30. But it’s not that—-  it’s what you sell the 10 ATOM for that you actually gain.  And for me, my ATOM is staying right where it is for a few years at least.

I learned about botting during the last bear market and formed my strategies to open quoteless bots going forward.  I believe that was a productive time, and I’m looking forward to focusing on growing my quantity in this next crappy market.  Sideways or downwards, the movement doesn’t matter to me. I just keep botting and staking whatever I can, using stable coin profits to buy more quantities.

You see, what I realized early on is that growing the quantity of your crypto is just as important as watching the value of that crypto as measured in other currencies.  So yes, it’s great to know what assets are worth as a whole portfolio, but this information is only valuable if you are looking to do a complete liquidation at any given time. 

The Value of a Fearful Market

Please put aside people like me who can’t stop talking about crypto, but I bet if you asked around, very few folks would talk about crypto/Bitcoin or anything concerning digital assets now.   This silence is because the market is fearful.  The ”Fear and Greed Index” depicts the relative fear in the market, and some economists believe the stories are hand-picked to invoke specific market-wide sentiment.

It depends on where you look for the precise value, but at this time, we are in “extreme fear” on this index.

Alternative Me

Fear and Greed Index


CNN Fear and Greed Index

In an “extreme fear” climate, consumer investors are responsible for most selling because they fear keeping a depreciating asset. If everyone in the market is greedy, they will want more and be buying a lot. And if everyone is fearful, not many people will want to buy. In the end, the uncertainty of it all plays with the market participants’ emotions, and, unfortunately, emotional traders end up on the wrong side of the trade all the time. Let me give an example.

Imagine something is hacked in crypto. It has nothing to do with Bitcoin, but fear of owning or buying Bitcoin ensues because of societal misconceptions.  Your instinct is to sell, cut your losses, and move on. Maybe you’ve done this. I know I have, he sheepishly admits. 

The underlying thread of all markets relies on a balance of information and capital.  The perceived knowledge of consumer investors creates tell-tale ebbs and flows important for market makers. In these cases, the market makers use their large amount of capital to swing trade. In other words, they buy when the consumer investors sell because they either need cash or are afraid to lose more value. Then they sell when the consumer buyers get excited again and enter into a buying frenzy.  It’s widely believed that a consumer investor leads with emotion all the time and uses logic very rarely.  It makes sense because a regular consumer—- like I used to be—- has little time to learn about investing as they are working all day long at a job that makes someone else rich.  

Just remember that when others are fearful, we should be greedy!

Think Long-Term

When people get spooked by a market downturn, they wrestle with the idea of staying the course. The result— they sell. That’s when big money gets into the game, buying up tons of quantity at discount prices to add to their balance sheet. That’s when the best prices make their appearance. Lower values and frenzied sell-offs are almost always indications of a bottom in the market. No doubt about it— this is one of the best times to buy. I don’t have the skills to say if our current market is actually a bottom, but assuming we are at a bottom, wouldn’t more people want to buy in and not be afraid? 

The hedge funds, banks, and large corporations are currently buying up Bitcoin as the consumer market sells it at a loss. These entities don’t sell for a loss because their time horizon isn’t a month or a year. They have decade-long investment strategies and enough money to purchase large lots of crypto.  And most importantly, these institutions have the willpower to sit on their hands and hold until their investment thesis is invalidated.

They also use the fear and greed index to know when to buy. The crypto and traditional markets are extremely fearful now. The last time this happened was when Covid crashed the market.  That turned out to be the best time to buy Bitcoin, as it shot way up just after the recovery. 

Because Bitcoin is a blockchain and transactions get recorded openly, we can see almost all trades, even though we don’t necessarily know who makes them. But we know when all wallets bought and sold Bitcoin, so it’s easy enough for companies like Glassnode to make a ton of relevant charts.  You can see folks who buy high and sell low.  It’s unfortunate because if they learn what Bitcoin is and that it’s a long-term store of wealth, they’ll start to understand why they should never sell Bitcoin.

To many, Bitcoin is a way to store your energy for later use in a better economic world.  But no matter what you think about Bitcoin, know that the big bankers have been stacking it in droves this past year.

The idea is that when “the market” gets greedy, it’s a good time to SELL, and when “the market” gets fearful, it’s a great time to BUY.  This order is the opposite of how we train our brains, but I hope you will join me by thinking this new way: Buy low, sell high, and don’t invest more than you can afford to lose. And if there is a discounted asset with a decent chance at an eventual high valuation, it makes sense to buy it. Don’t let your fear get the best of you. 

Misinformation in Perpetuating the Fear

But the fear is real because we can’t get away from what’s happening now and think long-term. Being stuck in the here and now has a lot to do with media coverage. For example, I’m both annoyed and intrigued by funny articles explaining how Bitcoin has been declared dead. Hasn’t this happened over 500 times? Don’t these brilliant, wealthy people and large institutions know that nothing can die repeatedly? With that said, we can conclude Bitcoin has never died.  

Nonetheless, some very influential people have instilled and perpetuated the fear. Some have reversed their message since, and others now own Bitcoin. But the height of the insanity was when Warren Buffet said he wouldn’t pay $25 for all the Bitcoin in the world. Comments like this just make me stop and wonder why there is a disconnect between reality and understanding. 

This article isn’t a political piece, but there are core truths regarding Bitcoin that can NOT be broken.  One of these immutable laws is that there will only be 21 million Bitcoin.  These aren’t laws that can be re-written or policies that change when red or blue leaders come and go in office.  These are coded truths that hundreds of thousands of computers worldwide abide by. To alter them, one must convince the owners of ALL these computers to change simultaneously, code the new change, push it out, test it, and promote it to the main chain.  After that, the control is in the hands of us, the ones who run the network, NOT the policymakers.

I have to take a sidebar here and explain what may seem like an obvious statement, but in light of Warren Buffet’s recent quote, I want to bring forward this bit of information.  It may be a little obtuse and hard to grasp. Still, since Bitcoin transactions are visible on a public blockchain, analytics companies can calculate when every wallet address purchased Bitcoin and how long it’s held.

HODL Waves does an incredible job showing this visually, but it looks confusing the first time you see it.  Over time, each wallet buys and sells Bitcoin, and HODL Waves gives an up-to-date representation of how long wallets have held Bitcoin.  The quantity of Bitcoin stored in these HODL wallets is growing considerably.  As of May 26th, 2022, the percentage of wallets that held Bitcoin for longer than one year was 65.79% and rising.  As you see in the chart below, purple represents (> 10 years 13%), blue (7-10 years 6.53%), teal (5-7 years 4.09%), green (3-5 years 14.45%), light green (2-3 years 6.7%), and yellow (1-2 years 21.02%).  Clearly, the quantity of Bitcoin held for longer terms is growing.

HODL Waves

HODL Waves

HODL Waves 2

Given the information above, let’s review the Warren Buffet quote—

People who fully understand cryptocurrencies know that no one can purchase all of the Bitcoin in one transaction.  In fact— as demonstrated above— most of the Bitcoin in existence now is not purchasable at any price. Instead, most Bitcoin is locked away in long-term storage, and only a small fraction is available on exchanges and OTC desks for purchase.  Therefore, the premise of Buffet’s argument is false, showing his lack of knowledge concerning crypto. So, how can he throw salacious accusations out that are uneducated in their nature? More importantly, why should crypto owners base their fear of the market on his views? 

These are challenging times for those of us deeply invested in crypto. However, I tend to maintain the mindset that “this too shall pass.” No amount of fear will shake me to the point that I do something drastic as I’ve seen worse  The overall worldwide adoption of Bitcoin in particular, has been amazing, and I only hope these low prices last a while longer so more people in the world can own Bitcoin.

The bottom line— I still own Bitcoin and all my other crypto. I haven’t sold any, and I don’t plan on selling any for many years. I still see the value in these currencies because as an asset rises in value, it’s really profitable to bot with it. So I will hold on and ride the next wave, possibly buying some of the dips to save for another rainy day.  Relative to the past month’s performance, the next wave up looks to be monstrous. The only question is when it will hit.  I have faith that the sun will shine again, and when it does, those coins will give off a brilliant glow.

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