Bills’ Blog: Lessons from Cryptocurrency, and Speculation! May 28, 2021

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Wow, what a volatile last couple of weeks in the crypto markets. Expect more. Firstly, this was no surprise to me and nor should it be to you. Bitcoin dropped over 50% in value; over one trillion in market cap went to money heaven, and other altcoins declined even more. I believe this is the 5th or 6th time in Bitcoin’s short history (12 years) that it has crashed 50% or more in value. To reassure you, this is normal as in all speculative assets. Whether in “want to be mining companies,” pot stocks or medical innovation projects. Most go bust, meaning over 98%! I have seen this happen over and over in my over 25 years of participating in speculative assets. 

Historically, in internet companies of the 1990s and the technology craze that ended with Dotcom- boom and bust from 1995 to 2001. Does anyone remember Wang computers, AOL and Netscape? Most speculative assets go to ZERO and have huge volatility! 

Just as a heads up, I have followed this new asset class for around seven years. In 2017, I finally plugged in with a small amount of capital (8K) after extensive due diligence, and I did exceptionally well that year. I will explain why later. I have continued to follow and study this new emerging game-changing technology. I also consult and provide honest guidance and education for those who want to learn about this fantastic innovation of blockchain and cryptocurrencies.

So, what caused the recent and ongoing significant decline in the crypto world? Well, has anyone heard of a fellow named Elon Musk? He can get away with his very influential Tweets only because this market is not fully regulated yet. For Elon, it appears to be a game. Sadly, for most speculators, it can be the life and death of their scarce capital. Please remember this! Elon likes Bitcoin, takes it in payment for his car sales, and then he doesn’t. His new preference is Dogecoin, and the technology is a piece of crap (sorry for being crude) and created as a joke. 

Second, China reinforced the tidal wave of decline by saying there are banning all cryptocurrencies. Just as a note, China has done this several times now, but this time it is more serious. Why? Chinese Bitcoin miners have dominated with over fifty percent of all bitcoin transactions. Even though Bitcoin is a poor transaction coin, it threatens the Chinese communist government’s new digital Yaun, the most advanced trial Central Bank Digital Currency (CBDC) in the world. Dozens of other Central Banks are working toward the same objective.

Oppressive and top-down control governments do not like competition. Here is some of the fallout already: After two prominent exchanges, Huobi and Okex, halted specific services to residents of mainland China this week, two Bitcoin mining operations have followed suit and also abandoned the country.  

 BTC.top and Hashcow have suspended services over “regulatory risks,” and many say there will be an influx of Bitcoin mining machines available for sale soon. Bitcoin.com News

Other countries like Turkey, Venezuela and India are taking similar approaches. Expect more regulations and bans in the days and months to come. The big question, is this the end of cryptocurrencies? No, I do not believe decentralized crypto projects are finished, but they will continue to develop alongside Central Bank digital currencies, at least for the foreseeable future. Cryptocurrency and blockchain are still in the early adoption phase when the best speculation happens. 

So, what are the lessons from Bitcoin and all Speculation? 

  1. All speculation investments are super high risk. Meaning you can lose 100% of your capital.
  2. Successful speculation is a strategy to capture significant price movements and profit. Not always easy.
  3. If you first do sufficient due diligence and research and then want to speculate, only start with a small amount of capital you are willing to lose possibly. Best to keep the amount to 2 to 5% of your net worth.
  4. NEVER use margin or debt to purchase crypto or other speculative assets! That is what super-enhanced the recent crypto collapse in the price was margin calls.
  5. All speculative assets are very volatile and often have significant price changes.
  6. If you are fortunate to have sizable profits, make sure you take a portion of the profit or all of it along the journey. Profit is not a dirty word. Most newbies to speculation see their profits vanish due to no sound strategy.
  7. Rule number oneGet your initial capital back as soon as you are able. The strategy de-risks the trade. In 2017 and recently, this has been my successful strategy. In 2017 my portfolio doubled, and I sold one-half getting my initial capital back. I was happy! Then it doubled again, and I repeated the process three and a half times until I exited the trade in early 2018. 
  8. A critical point, there is a season to be in a speculation asset and a time to be on the sidelines waiting for a new opportunity or re-entry point. I did not re-enter the crypto market until 2019.
  9. Just as figuring out a good entry point for a cryptocurrency, you must also pick a sale point. Never fall in love with any speculative asset. The whole point of speculation is to make sizable returns, 50%, 100% or many thousands of percent in some cases. Key Point: Profit does not happen by accident, but by a carefully thought out plan and diligently working your plan. 
  10. Yes, some people have a HODL approach (hang on for dear life). That may work if you have believed a specific cryptocurrency cannot fail. I am still of the belief that all projects can and most likely will fail. But, having said this, I believe in this new monetary and blockchain innovation, and there will be some huge winners (a few), and the majority of the over 10,000 plus projects will go the way of the dodo-bird! 
  11. In summary, I believe in speculation in cryptocurrencies as long as you have a good strategy and be willing to adjust when necessary. For me and millions of others, it has been very profitable. I hope this will be a part of your story. Having no capital in quality crypto projects is the wrong allocation, in my opinion, for most people. But, remember to do your homework first as there are lots to learn before your risk your hard-earned capital.

Happy speculation,

Bill

Financial Education & Honest Solutions Create Success

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