Now before I begin, I would like to make it clear that this is not a doom and gloom ‘crypto currencies are a bubble’ article – although the possibility will be mentioned. I am more aiming to ask a question that everybody seems to be avoiding – what will be people do when these extraordinary market conditions end?
There is no doubt cryptocurrencies have provided speculators with unparalleled opportunities over the last few years, and it has been incredibly easy to make a profit (Just buy and hold, right?) But up until this point it has been almost too easy. Just look at the graph for BTC over the last 5 years, up over 66000%. You’d have to have been unlucky to have bought and not make a profit, and most of the other cryptos have followed suit.
BTC gains from 2012-2017
In spite of starting well after 2012, I still made over $10,000 in early 2017 from these markets, and of course I wish I had bought years before, but like most people I was late to the game.
The point here lies in how it has been too easy to make extraordinary gains. Now that almost everyone is doing it, the novice investor loses his edge. So many new people feel like they have become ‘good traders’ because a basic buy and hold strategy has worked for so long, but it will not last forever.
Everyone typically sits in two camps on this issue: the die-hard ‘Crypto is the future’ believers, and the (usually) self-righteous ‘the industry is a bubble’ critics. Whoever ends up being correct is irrelevant, because there is one certainty – these gains will not continue forever. If Crypto really is the future, then the market will eventually have to stabilise as a result of supply and demand balances, higher liquidity and speculation being a less significant driver (how many people buying $BTC are currently using it to spend them, compared to simply speculating on future value?). And if it really is a bubble, then it is obviously not going to continue.
If Warren Buffet, one of the richest men in the world and arguably the greatest investor of all time, has ‘only’ averaged a 30% annual return over his career, then how can complete novices expect to continue to get triple digit returns forever?
Now this brings me back to my original point – what happens to these traders who have gained a false sense of confidence by starting in one of the most obscene market periods in history? I traded these markets, of course, but they only accounted for 4 markets (Bitcoin, Ethereum, Litecoin and Ripple) out of the 36 markets that I trade – the other 32 markets in my portfolio will continue as normal once this is all over.
The unfortunate reality is that most people will not be able to adapt to this eventual change in market conditions because they have not truly learnt how to trade. Whether this be in 3 weeks, 3 months, or 3 years time, eventually these easy trades will disappear and those who survive will those have used this time to master trading discipline.
This is partly why I started The Two Traders. I was initially lured in to a false sense of confidence until the market kicked me back to reality and I lost $6000 in a day. Thankfully, everything I’ve learnt along the way is available on the website, meaning if you’re willing to put some time in now, you can be one of the ones that continues to profit once this market is over.
The Two Traders