They come in waves. The relatives and friends that ask me how to make it in crypto. The follow-up questions are eerily similar. What to buy, whether I know about this or that coin and what I think about certain YouTubers, guru's and influencers. Oh... and often some graph with lines. I don't mind, I like it. It tells me they want to take life in their own hands, are fed up with their savings bleeding to zero. Or they just want to gamble. Also fine. All fine with me.
And I give them my most genuine and well-meant advice. Which they often will ignore. They will make their own mistakes, burn through the majority of their money and come back a few months later to ask me again what I think. All good. That's experience and also worth something. Although you probably over paid for those lessons. But I think I do have some solid advice for any beginners wanting to make it in crypto (or trading in general). Because yes you can make it. Obviously that depends on your definition of making it, but can you x100 your money in let's say 3 years? Yes you can. And a 100x is an amazing return. It's phenomenal. Heck just doubling your money in 3 years is good. Even though most people in crypto wouldn't get out of bed for that. And maybe they are right.
If you want to know more about my background you can go here. But let me just share with you my best and most sincere advice in how to navigate the beautiful world of crypto. These are my personal views and if it offends you please contact your mom. I don't care. So with that said, let's just kick the hornet's nest when we discuss the most common pitfalls for beginners. I don't know exactly know how their search goes but most of my beginner relatives fall for two things immediately. Both of which should be avoided at all cost.
Let me be clear: never pay for trading signals. Never. They are all scams. Without exception. They literally use you to buy their offers. In other words they dump on you. At first sight they look very legit. Because after their calls, the price does go up massively. But it's caused by all your colleague clients that pay for these signals and jump in as well. There's obviously a wide spectrum of paid signal and trading groups. One more scammy than the other, but in the end it's all a scam. No profitable trader would sell his alpha to strangers unless he wants them to bid up his holdings.
Technical analysis. I will not go too in-depth about it, but I personally see no value in it. Most of it is horoscope level bullshit. It might give you a slightly better entry or exit, but that's probably caused by a kind of self fulfilling feedback loop where other TA believers trade upon the same patterns. The thing about TA is that it gives you a false sense of control, of insights. It's almost like a religion. But do you really, honestly believe that drawing some lines on a graph that everybody can see will give you an edge? Really? Talking about edge. Why would you even trade without having an edge? Do you have one? Do you have an advantage in knowledge, foresight or execution over the rest of the market? In size maybe? Probably not. So don't you think that big traders could paint some specific patterns in the price to trick TA traders? I don't know just thinking out loud. I just know that no professional party I know of uses TA to trade themselves
When you have no edge you should trade as little as possible. The advice for most people is simple. Just long and wait. And buy some more on dips. That's it. Boring. But it works. Look at the price of Bitcoin. Look at the YOY rise. Buy and hold. It truly beats most traders. This is of course assuming crypto is here to stay and to grow. If you don't believe that, buy something else. Boomer stocks or whatever, just close this article. The reasoning is simple: money printing, low interest rates and some seriously groundbreaking financial innovations.
Buying and holding Bitcoin will train you. It's easy to look at the graph and think 'man I wish I bought Bitcoin at 4000 or 400'. Sure you do. But what would you have done when it crashed down more than 80%. With a constant stream of bad news coming out. You think you would have held easily until 40k?
I bet you think you would. But nothing beats actually holding it and going through a downswing in testing your perseverance as opposed to just imagining these things. It's like taking a penalty kick in the Champions League final. Can't really train for that pressure. Except for experiencing the real deal. So you need exposure. It also forces you to research what you're holding. Sounds weird, but most of my research I do after buying in. Exposure makes the hypothetical very real all of a sudden.
Third rule. Stay away from leverage. I will write another piece about it, but just take this advice very dearly. Stay away from leverage. Fourth rule. Again, STAY AWAY FROM LEVERAGE. Leverage doesn't simply make your gains X times as big while making potential losses bigger with the same factor. The real problem with leverage is that it makes your result path-dependent. Meaning that even if your final outcome is as predicted (you long because you think the asset will go up 20% and it does), you can still lose the bet because it went down first. Leveraged betting forces you not only to predict the direction well but you also need to know the path to the outcome. Trust me, you don't. Especially in crypto markets where so-called 'scam wicks' happen very regularly, leveraged betting is a negative expected value game you don't want to play. It's also not necessary, crypto is already volatile enough, there is no real need to amplify these movements.
Then, and this one might be a bit controversial but I think diversification is a meme. In traditional finance but certainly in crypto. Now I don't say you can't have 5 different coins or bet on several competitors or niches. But I've seen portfolios of 20+ coins and I just think it's overkill. Besides it's very unlikely you've done enough vetting to confidently say those 20 projects are safe and good investments. I personally prefer large concentraded bets. I often hold only 1 or 2 coins at the same time.
Diversification is often a quasi-sophisticated way to hide your fear. Don't invest with fear, invest with conviction.
Diversification is just dampening your own potential returns. Bet big on what you think are winners.
The first few times I stumbled upon 4chan I could barely read it. The layout confused me, I did not understand the jargon, even the colors put me off. I can safely say I made my best investments based upon some anonymous frogs on that messageboard. I've discovered the phenomenon of self-FUDding: people talking bad about their own investments as to keep others out. The board is 99% full or utter garbage but the 1% of value providing messages actually make it more than worth it. Compare this with another popular messageboard Reddit and it couldn't be more different. Reddit posts are one average very nuanced, detailed and a very good measure of consensus. And hence the worst possible place to find 'alpha'. Reddit is the middle part of the IQ curve, while 4chan occupies the extreme outliers on the curve: complete retards and geniuses. The point is everything is information, you just shouldn't take it at face value. In the examples above when you read very sophisticated, technical and eloquent post bashing a project on 4chan, it is often a better buy signal than a sophisticated positive post on Reddit.
A correctly curated twitter feed can be very valuable. Have you noticed how all big trading twitter accounts all parrot the same thing. They are turning you into their own alpha. You can learn a lot from the right accounts, but don't take trading advice from twitter. In fact, ignore everybody that is portraying themselves as traders. Focus more on the accounts that put effort either into explaining technicalities of protocols, calling out scammers or the ones that talk about less than 5 coins a year.
Everything is information but also understand that dynamics change. Rapidly. In 2017/2018 a new exchange listing was almost without an exception very bullish for a coin. Now it's often a new venue to dump. Too many projects realized that they could easily pump their coins by announcing a new listing. Patterns change. The moment too many projects find a shortcut to pumping their project the pattern will rapidly fade. You will also notice how unoriginal a lot of projects are. Newest trend: starting rumours of potential retrospective airdrops to attract more users to a protocol or announcing a multi million dollar 'incentive program'.
This is another big pitfall for beginners, which makes them overtrade and inevitably leads to getting 'chopped out': you will have stomach missing out on 99/100 pumps in the market. Just embrace this fact. And cheer for it. Pumps with volume mean there is a lot of capital in the markets. Get used to -5% days, -25% days, +45% days. This is not your grandfather's market. Double-digit percentage moves don't necessarily mean you need to trade in or out.
▼ Some advice for when things are going down:
There are not a lot of good projects that went to 0. I personally know of none. So if you are not holding utter crap, you're good, even if short term price movements make you vomit.
If a good project falls victim to a hack or exploit, you will often see that the initial dump retraces. Don't panic. Unless you're fast enough you will probably get hurt selling around the local low.
In this market as a beginner you should focus on surviving rather than maximing profits by chasing the next big shiny thing. Surviving means, stay away from leverage. A new bull is always around the corner. I've seen too many big stacks getting completely wiped out. Only to miss the next bigger run up. Painful.
▲ Some advice for when things are going up:
The market does not care about your entry price. Just because YOU bought in at a level that gives you a 100% profit right now, that doesn't necessarily mean it's time to sell.
That said: things don't go up forever without coming down a bit. Have a look at some crazy multiyear runs, like FTT, Bitcoin or LINK. Try to imagine holding them through their 100% runs and their -50% drops.
Ask yourself, what would make you hold/sell them? Would you miss out by selling too early?
I don't know the exact underlying psychological phenomena that make it so, but 'shorting' often comes from the ego and the drive to be different than the herd. A well-timed short somehow feels better to the ego than a well-timed long. Even if both would have the same ROI. Now, why would I advise you not to short. Again, just as with leveraged (long) trading you are now making a path-dependent bet. Even if the asset does go down, you can still lose everything if it goes up too much in the mean time. Shorting is on margin, so it can be seen as a leveraged position, with a liquidation level. You are betting against a market full of buyers. Shitcoins can pump, scams can pump and even flat-out ponzi's can pump. Don't be a hero, play long spot only as a beginner.
Now here's my advice to making it: aim to buy a x10 once a year and you will turn 1000 USD into 1 million in 3 years. That is some postgrad mathematics right there, but I am not even joking. This is what you should be focusing on, instead of daytrading your account to 0 on minute bars, or trying to find a x1000 project. There are still a lot of x10 possibilities in crypto. The x10's are technically sound projects, with a decent roadmap and team and a bit of hype potential. The x1000's are the pure hype-plays, I personally never buy in on t (animal-coins, copies of succesful projects on different chains, etc.) If you focus on finding the undervalued solid projects, even if you don't pull of a x10 you are probably still in a good spot. And in the end really making it is enjoying every day and nothing else.
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