In May of last year I wrote about ‘How to avoid Irrational Crypto Exuberance.’ This is a follow up post that may help those who have been drawn into an Altcoin hype cycle, or leveraged Bitcoin trading against their better judgement.
For new participants, the last few days have been very stressful. It is one thing reading about capitulation from more experienced traders, but a very different thing to actually experience it. What’s even harder is if you had read enough to know that:
a. Bitcoin was probably the only strong use case at this stage;
b. Some risk management was important in December 2017.
Maybe you listened to Trace Mayer and Nick Szabo. Grasped the idea of Digital Gold and the derivative nature of other coins. Maybe you even got as far as Rothbard. But you allowed yourself to be drawn in by short term thinking. Maybe you were re-assured by VC's with good track records in company investing and put off Bitcoin by tribal nature of some Bitcoin Maximalists.
Many of you will have told yourself that altcoins were nothing more than a gambling bet. You knew that platform with no users wasn’t worth $1,000,000,000+ but someone drew fancy chart and you went for a punt. What you didn’t realise is how painful the sudden, then slower declines can be. At least when you bet on a horse or a sports game you will lose quickly. A bleeding crypto market feels like death from a thousand cuts.
For me, there are a few good tricks to use whenever you feel panicked.
Twitter
My first question when I think about a trade is, has the panic or excitement coincided with time spent on Twitter?
Why does August 2018 feel worse than when Bitcoin dipped to below 6000 in February? Is it because many popular Twitter accounts got irrationally exuberant soon after the February dump and are now as lost as you are? This should be re-assuring. You now recognise that these people are too short term in their thinking and it might be time to unfollow them.
Embrace the moderates with a long term view.
There is a reason that Willy Woo, Jimmy Song, Trace Mayer and Tuur DeMeester have remained more helpful than most during this, and previous market cycles. All four in my view have maintained a long term view with a large dose of humility. They resist saying I told you so and avoid personal attacks. They have been broadly right and modest. This is rare and worth acknowledging.
Think about the next boom and bust cycle.
It is important to think for yourself but there is no replacement for battle scars. Now that you have them, how will you manage risk going forward? Will you look into a Put option when the Mayer Multiple is high or consider selling a % of your holdings? Will you listen primarily to those who gave good advice in this cycle or be drawn in again by get rich quick schemes? If you are still bullish on some altcoins, and can’t resist trying to time pumps, will you at least use stop losses? By focusing on what you could do right in the next cycle, it will reduce the pain of current losses and might even improve your current risk management.
Gallows humour.
For new participants, the last few days have been very stressful. It is one thing reading about capitulation from more experienced traders, but a very different thing to actually experience it. What’s even harder is if you had read enough to know that:
a. Bitcoin was probably the only strong use case at this stage;
b. Some risk management was important in December 2017.
Maybe you listened to Trace Mayer and Nick Szabo. Grasped the idea of Digital Gold and the derivative nature of other coins. Maybe you even got as far as Rothbard. But you allowed yourself to be drawn in by short term thinking. Maybe you were re-assured by VC's with good track records in company investing and put off Bitcoin by tribal nature of some Bitcoin Maximalists.
Many of you will have told yourself that altcoins were nothing more than a gambling bet. You knew that platform with no users wasn’t worth $1,000,000,000+ but someone drew fancy chart and you went for a punt. What you didn’t realise is how painful the sudden, then slower declines can be. At least when you bet on a horse or a sports game you will lose quickly. A bleeding crypto market feels like death from a thousand cuts.
For me, there are a few good tricks to use whenever you feel panicked.
My first question when I think about a trade is, has the panic or excitement coincided with time spent on Twitter?
Why does August 2018 feel worse than when Bitcoin dipped to below 6000 in February? Is it because many popular Twitter accounts got irrationally exuberant soon after the February dump and are now as lost as you are? This should be re-assuring. You now recognise that these people are too short term in their thinking and it might be time to unfollow them.
Embrace the moderates with a long term view.
There is a reason that Willy Woo, Jimmy Song, Trace Mayer and Tuur DeMeester have remained more helpful than most during this, and previous market cycles. All four in my view have maintained a long term view with a large dose of humility. They resist saying I told you so and avoid personal attacks. They have been broadly right and modest. This is rare and worth acknowledging.
Think about the next boom and bust cycle.
It is important to think for yourself but there is no replacement for battle scars. Now that you have them, how will you manage risk going forward? Will you look into a Put option when the Mayer Multiple is high or consider selling a % of your holdings? Will you listen primarily to those who gave good advice in this cycle or be drawn in again by get rich quick schemes? If you are still bullish on some altcoins, and can’t resist trying to time pumps, will you at least use stop losses? By focusing on what you could do right in the next cycle, it will reduce the pain of current losses and might even improve your current risk management.
Gallows humour.
It’s not for everyone but I personally enjoy the shared misery humour. Timing market cycles is extremely difficult and surviving is more important. Laughing at the situation can help.
Draw a few long term charts.
Even if you feel we have already reached a bottom, long term charts help to remind you how much you have been focusing on daily prices. They stretch your outlook, even if they are wrong. You feel you have considered a range possibilities other than hoping for an immediate recovery, depending on others or shorting at the wrong moment. ( Price could go lower than this chart below, it's just an example. I don’t know where the price is going short term but I remain positive long term) My long view from April 2017 remains the same.
Draw a few long term charts.
Even if you feel we have already reached a bottom, long term charts help to remind you how much you have been focusing on daily prices. They stretch your outlook, even if they are wrong. You feel you have considered a range possibilities other than hoping for an immediate recovery, depending on others or shorting at the wrong moment. ( Price could go lower than this chart below, it's just an example. I don’t know where the price is going short term but I remain positive long term) My long view from April 2017 remains the same.
h/t @MunroMhat
5. Track your daily sentiment with a simple app. Then back test some of it against charts.
Were you optimistic at top and miserable at the bottom? Even using a simple emoji mood app like Daylio once a day can help you spot fearful and greedy periods and manage them better next time.
6. Transfer your Bitmex balance to your most secure, non-trading wallet. Now.
Have a read of your Bitmex P&L if you need an extra push.
7. Write a short blog post.
Writing anything remains a great form of therapy for me. You may not publish it, but if you do, you might find others share your feelings and find it helpful. I strive to do all of the above but fail at times. Feedback is always welcome.
5. Track your daily sentiment with a simple app. Then back test some of it against charts.
Were you optimistic at top and miserable at the bottom? Even using a simple emoji mood app like Daylio once a day can help you spot fearful and greedy periods and manage them better next time.
6. Transfer your Bitmex balance to your most secure, non-trading wallet. Now.
Have a read of your Bitmex P&L if you need an extra push.
7. Write a short blog post.
Writing anything remains a great form of therapy for me. You may not publish it, but if you do, you might find others share your feelings and find it helpful. I strive to do all of the above but fail at times. Feedback is always welcome.
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