I woke up and thought about the markets, thinking it's going to be a brutal way back to $10,000. Will it ever get back up to 10k or even an all-time high? Did I have a case of the Mondays? No. I have just been bombarded by the crypto hate lately so I took a step back. June 25th, 2017 bitcoin closed at $2,477. Today its currently trading at $6,258 a solid 152% ROI in one year. If you told me 365 days ago Bitcoin would be up 152% after climbing up from $1,000 earlier in the year I would have been happier than a pig in mud. Which brings me to……..
A topic not discussed enough and recency bias. Wikinvest defines it as: "where stock market participants evaluate their portfolio performance based on recent results or on their perspective of recent results and make incorrect conclusions that ultimately lead to incorrect decisions about how the stock market behaves”. This is a very important concept to understand. Many of you have probably seen this image but it has an importance for trading/investing and how we FEEL about our positions. See image below
Crypto is a polarizing topic. You have half the crowd rooting for it to fail and then you have the other half wanting it to reach the moon. You couple that as a reader, learner or market participant for what you want to see hear and read. Now you can think of confirmation bias (Fox News, CNN, MSNBC do you watch the same news station or same stations?).
From December 2013 to January 2015, the aggregate network value of crypto dropped from $15.9B to $3.1B, representing an 80% drawdown. Since peaking in early January 2018, we’ve fallen from $835.5B to $252.8B in aggregate network value, representing a 70% drawdown. As many have read from Peter’s update a few days ago this drop is normal in Bitcoin and has happened five times over the past seven years. So, why is it so different now?
I know we are at better times than the Mt. Gox saga that hurt markets from 2013-2015. Back then Gox controlled everything. Awareness was extremely low and the network effect of bitcoin was almost non-existent. I don’t foresee another 150+ week return to a new all-time high. We are a little more than 6 months into the bear trend and yes it might take many more weeks or months for bitcoin to build its next base before a bull trend. Why would I think those thoughts this morning but due to the fact recency bias has been in my face for weeks about how crummy bitcoin is. What would make you think that Bitcoin won’t reach an all-time high again (it’s come back five times over seven years, why not an sixth)? Do the best teams repeat in sports? Will the Patriots win the AFC East again this year? Things have a habit of happening over and over again like anything in life. I don’t think the crypto markets will be any different so I beg of you to zoom out and look at history as an indication.
I understand everyone's pain with bitcoin, altcoins and losing money but you don’t just walk into trades and make money. This does nothing if you bought the top, and is relative. But in absolute terms for the bitcoin experiment, it's literally incredible it has come this far. Making big returns just isn’t that easy. People thought it was so easy during the November/December run up it should have been a moment to take pause. When I have people contacting me from high school that don’t give a damn about tech asking me about BTC, XRP & IOTA that should have been more eye opening. (yes, I got these messages a lot from December-February).
I’ve been at this four years and got caught up in the recency bias of the times then and only sold about 5% of my holdings. So I'll learn something from this cycle and market move. Even I have some regret. "Why didn’t I sell even more?" My mind tells me “jeez, Mark you only sold 5% of your bags and you left so much capital on the table.” As you already know or will soon to find out, hindsight is an enemy in trading and should be avoided at all costs unless it is to learn a lesson or take a truth for the next round. My stance on crypto is that it makes these run ups and downs and after the crashes comes back stronger. It has done it before and it’ll do it again.
If your thesis for investing in bitcoin/crypto assets is still the same then logic indicates you hold your positions at these price points. If your rationale for investing in these assets no longer exists sell and move on. Crypto 2013-15 vs Crypto 2018 isn’t even close for the level of investment risk. Today is so much lower than any other time in history. It might not seem that way but it’s true. Crypto isn’t going anywhere and those of you who understand Bitcoin doesn't need to be a full time payment system to have value, are aware of its digital gold storage like properties
I stick by my investment thesis, even if it takes another 6+ months before returning to a bull market. This is actually good for investments, the markets and realizing that wealth and capital is built over time not overnight.
Now Look at the Market Psychology vs Bitcoin Daily Price Chart: There's no telling how long anger and depression last but there will be a disbelief stage and it’ll be great. See where numbers one through seven line up. It's no ouija board but something I do find interesting.