How To NOT Lose Money In Cryptos

There sure are a lot of people posting charts and telling you how to win with cryptos but I haven’t seen many on how not to lose. In any kind of investing you need to have some general kind of a plan or strategy. I know I know, “buy low, sell high” . That seems to be the consensus but its like driving in a car with a foggy windshield and your foot on the gas. You need to see what’s going on outside in order to get to the other side! In this article I’m going to try and discuss the market correlation to the current trend in crypto currency trading and hopefully this will save you some money (and heartache!)

So, let’s get right down to what we can do to avoid losses buying cryptos. Usually I would look at each asset and think about its utility and what catalyst could drive it higher. In the case of cryptos I think that it’s very clear that the rise is correlated with the overall market rising.

How do we know that the cryptos are correlated with the overall markets rising? We know this by the fact that global central banks have been working in concert since the so called financial crisis of 2007-2008 (and probably before) to intervene in markets. They have all been doing massive bond buy backs, corporate stock buy backs, bailouts, etc. This has caused the market to have an appetite for risk because the likelihood of failure (private) has dramatically gone down. Thus, we’ve seen 10 years of non-stop gains in the markets. Last year we had a record number of record days of market gains, its insanity!

Crypto currencies gains were a product of this historic market rise. The block chain technology behind these currencies was in part an effort to eliminate manipulation and fraud by the ledger of transactions being stored in the block chain but I don’t think that this is behind the recent rise of these currencies. Without any doubt I think that we can agree that 95%+ of the rise in crypto currency valuation is a result of speculation. There is no other driving force or catalyst that could justify such gains in a short period of time.

The interesting correlation is that the overall market has also risen as a result of speculation. Economic growth is pretty much flat. However, money is cheap and the banks keep lending it. That being said we can predict the future market action in the crypto markets by paying attention to the structural supports of the global markets, make sense?

For now we are in an uptrend in both the global markets/major stock indexes as well as the crypto currencies. What can derail this current up trend? Any number of things can derail this trend like a major catastrophe, political upheaval, etc., but something that is currently happening that can cause a problem is the rising of interest rates. In order to keep the current game going interest rates have to be kept low so that people can keep borrowing to consume. If borrowing costs go up people won’t be able to consume as much, profits go down and in turn stocks go down.

In a case where we see rising interest rates the effects aren’t usually sudden, they have a lagging effect. Think of it in the case of real estate, if rates go from 5% on a 30 year term to 5.50% it may stop some buyers but not all buyers. Gradually as the rates rise the buyers ability to afford the loan will happen and lead to a slowdown in sales. My thoughts are that if the rates on bonds continue to rise it will lead to economic slowdown and thus a selloff in both global markets and crypto currencies.

The selloff is going to at first be seen in increased volatility as speculators buy the initial dips like we saw in the past few weeks. Then, as the markets increase in volatility the trend will eventually find its new direction which will be down. Why won’t everything continue to go up you might ask? The answer is because the current debt is more money than there is in existence and we haven’t had a noticeable market correction within quite a bit of the population’s lifetime. Gravity has to enter at some point.

In conclusion, you can play the crypto market in the short term by watching the yields of the major markets for now (unless they decouple). I think that the block chain will be around for years to come but the currencies have shown that they correlate with market liquidity so “the trend is your friend” for now. Remember to do your homework when making financial decisions, and keep in mind the big picture.