These are all statements I see so often that I feel it's worth it to dedicate a post to it to show how and why these are wrong. Turned out to be a long post, so tl;dr:Past price performance doesn't determine future price performance, either upward or downward.Drawing lines on graphs is good for art school, not so much for investing.DCA works when there is a valid expectation of future profits, which is true in general stock markets but generally not in crypto.The price for 1 unit of crypto should not play into your thinking about which to invest in.1. You're dumb for investing in XX, it's clearly on a downward trend. Pick XY instead, everyone can see it's got that positive energy/is warming up/has been going up!The past price performance means nothing for what the price will do in the future. Just because something has been going up, doesn't mean it will keep going up. Bitconnect was an absolute opportunity - going up from $0.13 in January 2017 to $86.59 in August 2017! The price had obviously been going up, it's got a lot of positive power behind it! Well, we all know now that this was completely overvalued. Or do we? From August 2017 to December 2017, the price rose to a high of $470. A completely ridiculous price. This was AFTER the whole Bitconneeeeeeeeeeect stand-up act. Markets are unpredictable in the short term, and while something might have been going up for a while and seem like the next Tesla, in the short run markets are going to bounce around and be manipulated. There's a reason those that make money in stock markets tend to be those that take a long-term view (Warren Buffett anyone?) and that try to not let short-term fluctuations bother them too much.2. But these lines I've drawn, they show that we're on an upward counterhooking octopus tentacle claw into Marge's hair move!You might have drawn some very nice, fancy-looking lines, but "anything you can do, I can do better" where "I" is a trading team filled with quants, massive computing power, and time to analyse this shit all day long. If you genuinely think your TA stands a chance against hedge funds who have far more money on the line and can control the market far better than you do, you should apply to a hedge fund.3. Okay, so I'll just DCA then, that works!So what dollar cost averaging is for in regular markets is to smoothen the highs and lows during the ever-upward trajectory. If you're investing purely in SPY (S&P 500 ETF), putting $1k in every month and it's worth $100 now, you're buying 10 of them this month. The price shoots up to $200, it just means you only buy 5 this month. Price drops to $50? Congrats, you're getting 20 of them. The reason this works is that the stock market as a whole has shown a propensity to increase in price in the long term, because companies create value. In the long run, the economy keeps growing, companies keep innovating, and those that don't are weeded out. This is rather sensible and a reason it's generally recommended to put some of your money into broadly diversified ETFs.CRYPTO IS NOT LIKE NORMAL COMPANIES. You wouldn't DCA into gold expecting it to keep going up at anything more than the inflation rate, because it doesn't create any new value. You wouldn't invest in any commodity with this expectation. The reason it works for companies is that you are, as a part owner, entitled to part of the profits, and you assume there will be future profits that the stock market as a whole makes because they are constantly innovating to best suit the needs of the population, to beat out their competitors. If they don't, they go bankrupt. Can you say the same about Bitcoin? Do you see innovation happening, do you think it's out-innovating and out-competing the others so that it's offering long-term value? If not, you are speculating based purely on the expectation that others are going to want to buy your shiny rock for more money when you're ready to dump it, and that's closer to a Ponzi scheme than an investment.4. Gotcha mate. I'll just stick to low price tokens, they have more upward potential.I can't believe this even needs to be said, but the individual price of a cryptocurrency has no bearing whatsoever on either its upward or downward potential. If there's a crypto of which only 10,000 are going to be in circulation, but it has 37 decimals behind the comma, and there's one where 50 trillion are going to be in circulation without any decimals, you can. not. compare. the. individual. price. Look at market cap, sure. Just don't trade based on how "cheap" or "expensive" a single crypto unit is.If you genuinely want to make money in crypto, it's not as simple as following the mantras that you see others following here. Those shouting loudly about how their XY token has been going up since forever and you better buy in before the FOMO hits and everyone wants to buy are speculating, nothing more. They're hoping you jump in so that you pump the price further, validating their beliefs, or so they can dump on you. Those companies and institutional investors that you see buying in and suddenly explain to you why XY is the best thing since sliced bread? Same for them, it's 100% their incentive to have you buy so they can dump on you.If you're investing in anything, make it for the long run. Don't let yourself get guided into buying an individual stock just because it seems to be performing well, and hold to this even more so for crypto. If you're investing for the long run, look beyond the past price performance, and look at what value you think this particular crypto might add to the world. Who knows, you might be picking the gem that is being criminally undervalued by the market, or that isn't that well-known to the outside market yet. If you've done your research, you might find the one crypto that seems like it's out-innovating its competitors for the long run, that offers a chance at long-term gains. Always do your own research, because everyone here has an incentive to shill you into the particular crypto they are holding and when the price starts dumping you might be wondering how you ever got tricked into investing into yet another entry in history's Ponzi scheme books.Sorry for the terribly long rant, but anyone outside crypto that is coming into this subreddit is going to rightly think it's filled with easy targets to make some money off of, and we aren't proving them wrong so far.
Submitted November 13, 2020 at 03:02PM
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