Most important rules for any Crypto Investors!

Crypto buzz #2 (Reading time: 10-12 min)

In this post I would like to talk about a few ground rules when it comes to investing in crypto currencies. A lot of it also applies to any kind of investing.

1. The most important rule of all: INVEST WHAT YOU CAN AFFORD TO LOSE.
   Be it $100, $500, $1000 or more, you need to remember that there is always a chance you will lose your investment. If you made the decision to enter the investment world, spend an amount which will not significantly affect your every day life.

2. DIVERSIFY
   Or in other words “don’t put all your eggs in one basket”. So you think Ripple (XRP) is supper awesome and it will go to gazillion dollars in 2018? That’s great. What if it doesn’t? You may lose your investment, see some quite modest gains or simply miss a plethora of other opportunities. Find a number of different coins you believe in and spread out your investment. Some of those may go up and some of those may go down, but at least this way you are greatly reducing the chance of losing your entire investment...and who knows, maybe one of those coins will be the rocket that will gain 100X in a year.

3. BUY LOW, SELL HIGH
   or as some investors like to say: buy the rumors, sell the news. When you hear about a coin that gained 5X in the last couple days, you are most likely already too late to catch this wave. Try not to make emotional decisions and follow the FOMO (fear of missing out). Yes, some coins can go way beyond 5X, but you need to look at various factors to make a realistic prediction whether it has a good chance of happening. I will talk about some of these further on.

4. DON’T PANIC SELL
   This is in a way an extension of rule #2. So you followed the hype and jumped on that coin that gained 500%. Guess what…the moment you did that, it starts going down and a lot of neewbie investors panic sell at a loss, worrying that it will go down even further. This is fundamentally wrong in a generally bullish market (bullish means that the market has a general trend of going up). In most cases a coin that goes up this fast will have a “correction”, which means that people will sell to make a profit, and that will drive the price down. If this is a good coin and a promising project you believe in, do NOT sell. Be patient…it will go back up. In fact, this may be an opportunity to buy a little more at a discount price. Something, which a lot of smart investors will do.

5. DON’T BE GREEDY
   Not every coin is going to gain 500% in 3 days or a week or a month. Have a strategy of taking profit. Set targets by assessing the potential of a certain coin. If you believe it is a long hold, by all means - hold! However, if you were lucky and/or smart to catch a ride on a coin that gained a lot in a short period of time, allow yourself to take some profit. Especially, if you think it doesn’t have too much room left to grow (more about this later).
   Side note: it is important to mention that there are different investment strategies. Some people like to take quick, relatively small profits and re-invest in a different coin (coin flipping), some like to hold mid term (several months), take partial profits and re-distribute or re-invest; some hold long term.

6. DO NOT DAY TRADE
   This is more of a personal opinion than a rule. Many people day trade, but you need to be a very experienced and intuitive trader to do this. Cryptocurrencies are HIGHLY volatile and unpredictable with wild price swings. If you know what you are doing, you can make some nice quick profits. If you don’t, you will get burned and lose your entire investment just as quickly.

7. DON’T LOOK AT THE PRICE, LOOK AT MARKET CAP
   When you see a coin which is priced a few cents or even a fraction of a cent, it does not mean that it has more room to go to hundreds or thousands of dollars. Market Cap (Capitalization) is the total circulating supply of a coin multiplied by the price of one coin. Lets take Tron (TRX) as an example (currently ranked #9). Its current market cap is 10 Billion dollars. Tron has a circulating supply of 65 Billion and currently the price of one coin is about 0.15 dollars (the amount of times I used the word "currently" just shows you how volatile this market is). Anyway...65 Billion x 0.15 = roughly 10 Billion dollars. For comparison, Bitcoin has the highest market cap, which is currently 255 Billion. So when you see youtube videos that say “OMG, Tron to the moon, $10 in 2018!!!”, ask yourself - is it realistic that Tron’s market cap will increase 66 times in one year (from its current price), which would put it at a market cap of 660 Billion (2.5 times higher than Bitcoin)? That would be awesome, but not very realistic.
   There are some other factors, which can affect the price, such as - partial token burning, hard forks, buy back mechanisms…but I will talk about these in my future posts.
   Now lets take another example, - a “train” that I actually missed. Cardano (ADA). It is currently ranked at #5 in market cap. In the end of November, Cardano was priced at 2 cents per coin. In one month it went to 50 cents. That’s a 25X gain in one month. Crazy, right? Yes and no. If you look at the project and the people involved in it, you will see that this is possibly one of the most promising projects in the world of Crypto currently. At a price of 50 cents, Cardano was sitting at a 13 Billion market cap more or less. Quite high…as I watched this train leave, I asked myself…should I follow the FOMO and still invest in it? Maybe it reached its maximum potential…maybe it won’t grow much more, but then I reminded myself how amazing this project and the team are and made a decision to invest at an ATH (all time high) of 0.5 cents. Guess what…very soon after, it started going down and stabilized between 30 to 40 cents. Did I sell? Not a single coin…because I believed it will go back up. On Jan 4th it hit a price of 1.26 and a market cap of 32 Billion. That’s a 250% gain. Currently, it is “flirting” with the 1 dollar mark, going slightly up and down from it, but I firmly believe it will go back to the all time high of 1.26 and probably surpass it, which is why I am holding!

8. DO YOUR RESEARCH
   I can not stress enough how important this is. You can read 50 different articles and watch 100 different videos recommending this coin or another, but you MUST do your own research and decide whether this is something you want to invest in. Don’t jump on a project purely because of the hype around it. You may get burned or become a victim of a scam or a pump and dump scheme. Pump and dump is when the price of a coin is artificially boosted via false promises or exaggerated statements. Investors who already have a position in it, drive the price up…you jump in at a fairly high mark following the hype and the fomo (remember rule #3?), and the price goes crashing down to its initial pre-pump state (or lower). If you are smart and can spot the pump and dump in advance, you can actually make a good profit from it, but this is a VERY risky investing strategy. So what are the things to look out for when you are researching a project?
   a) Social presence and activity - Does the project have Twitter, Reddit, Facebook? How many followers/likes/readers do they have? Are these real likes? If the Facebook page has 5,000 members, but you see 3 likes on individual posts…something is up. Is the team actively posting? If the last update on the twitter page is from 3 months ago, it is generally
   not a good sign.
   b) Does the project have a website? Does it look professional or like it was made by a 10 year old? :)
   c) Does the project have a clear description of its goal/mission/product? “We are an awesome decentralized privacy coin that is 10 times faster than bittcoin” is not a clear project description.
   d) Does the project have a Road Map and/or a White Paper? Road Map is an outline of the future development and progress plan. White Paper is a detailed description of the project, with all the info you need to know about it.
   e) Who are the team members? Are they introduced on the website? How much experience do they have in their field? How many team members? How many advisors?
   f) Initial market cap - this one can be tricky, because some projects do start with a relatively small market cap, which grows over time, but if you see a brand new project with an initial market cap of 100K (very low), which suddenly becomes 50 Million after a few weeks? Be careful…this smells like a pump and dump. In contrast, a great project which I am invested in (Sia Coin), also started with a market cap of 130K…but that was in 2015. Big difference! :) Currently, it is at 2.7 Billion.

9. HAVE A PLAN
   Decide what your trading strategy is going to be. I described some of them above. Do you want to return your initial investment first or do you want to keep it in to maximize profit (but also risk)? Personally, my strategy is to gradually take some profits over time until I return my original investment. Once I pass this stage, I can no longer lose any money. Only make profit. Even if I lose the entire remaining amount, technically I haven’t lost anything.

So these are the (9) rules/suggestions I wanted to share with you.
Disclaimer: I am NOT a financial advisor just an investor like you are. I am not responsible for your profits or losses, so please use your own judgement and make your own conclusions. If you think I missed some important points, would like to share some thoughts or
just say hi - please feel free to leave a comment!

Happy investing and have a great week!