There has been a recent flurry of posts trying to reassure newbies that thisisfine.jpeg. Whenever there is a dip, some old hands decide to help out/motivate/karma-farm/act high and mighty...These feel-good posts are all well and good, but once you've seen one, you've seen them all. So I'm going to try and add a bit more substance (though I am aware of the irony that I'm basically doing the same thing, only with better grammar and more references to peer-reviewed journals).Informative posts tend to get downvoted to hell though, so who knows if this will even be seen. I spent a bit of time trying to put it together, so if you think it's useful, please do give an upvote for visibility.Tl;dr If you play it safe - with boring strategies, such as dollar-cost averaging, diversifying in high-cap tokens, and taking advantage of compound interest - you will probably still get massive return on investment.Also, as I get older, I'm starting to realise a few years isn't that long. Traditional financial investment might make you rich over 30-40 years. I believe crypto can do it in 5-10. This might seem like a lot, but it's not. Stop thinking in days and weeks and start thinking in months and years. .First, some data on trading:The average individual investor underperforms a market index by 1.5% per year. Active traders underperform by 6.5% annuallyProfitable day traders make up a small proportion of all traders – 1.6% in the average year.The typical day trader loses money by a considerable margin after adjusting for transaction costsFurthermore, the authors of the second study write that "inconsistent with models of rational speculation and learning, we document that the aggregate performance of day traders is negative".This is all about regular stock trading, but you get the idea. .Second, some anecdata about crypto friends:Maybe academic papers aren't your thing. Fair enough.Back in 2017, two friends of mine got into crypto and we started a WhatsApp group to share tips. One friend invested steadily into Bitcoin and a few alts. The other friend invested heavily into altcoins and traded every day. In a bull market everybody thinks they're a genius. He made a lot of money then lost it all. In 2018, he tried to carry on trading, but this was now a bear market. He lost even more.Fast forward to this year, and he's now anti-crypto. Regrets all the money he lost. Thinks it's all a scam. At the first sign of recovery, he converted the dregs of his altcoins to BTC, sold via Coinbase and left the chat. If he'd held on for another month or two he might have recouped some losses, but he didn't.My other friend carried on DCA'ing into BTC and ETH and is now up considerably. .Third, some cognitive biasesSurvivorship bias means that we concentrate on the people who win. See some smug bastard proclaiming his shitcoin profits in the Daily? He won. What you don't see are the hundreds of Wojaks who tried different trades and lost. Badly. You are more likely to be one of those sad fucks. Sorry.Hyperbolic discounting is the preference for immediate payoffs to greater payoffs at a later date. Crypto is seen as a "get rich quick" scheme. If you're new to this game, reset your expectation to "get rich more slowly than I'd like, but still fairly quick all things considered" scheme and you'll do just fine. .Next, some info on Dollar Cost Averaging:Buying $100 of Bitcoin every month for 3 years starting 3 years ago would have turned $3,600 into $5,413 (+50%)That might not sound like much but the point is that even if you had bought bitcoin near the absolute peak, you would still be 50% up by now. That is INSANELY good.Let's play around a bit more.Dollar cost averaging Bitcoin biweekly from 07/09/2016 to 11/27/2020 gave 526.26% ROI and you would now own 4.3 BTC. 2016 was early, but it shows how a little time in the market works. .Can you beat the market by buying the market?Check out the top ten crypto fund posts. The answer is... probably.There is a lot of data to comb through here and I bloody love this guy's monthly updates. They're honestly the best posts on this whole subreddit.I hope he doesn't mind me attempting to summarize, but the main points appear to be:BTC and ETH have generally outperformed the other picksCrypto is still beating the stock market(This depends on buy-in times)Despite it being a three-year bear marketThe upside in a bull market is huge. .Longterm predictionsMathematical analysis of crypto gets a bad rap. John McAfee famously got it wrong. But that doesn't mean it's all nonsense. Patterns tend to repeat.Here are various predictions for a $100,000 Bitcoin.The logarithmic regression band shows a steady upward trend, with decreasing volatility. It's a reasonable assumption that this will continue. There will be bubbles, there will be corrections, but BTC will continue going up. And if you iron out the swings, it will give greater returns than any other asset class. Crypto as a whole will also go up and other coins will give even greater return. These will be hard to predict. Diversifying a small amount into a few other coins will give some exposure to this effect without too much risk. .Finally, some thoughts on compoundingOK, not your keys, not your crypto.But... Someone once said compound interest is the eighth wonder of the world and the key to wealth.The reason for the boom this summer is DeFi. For the first time, it's possible to earn interest on crypto. There are risks involved, but it is a force multiplier that can massively improve your success, and it would be remiss of you to not consider it.Compound interest is great on its own. But using compound interest to accumulate more units of an asset that is itself appreciating, will accelerate the process dramatically.Consider the following:You bought one Bitcoin at $10,000.You HODL for ten years and it reaches $100,000.Go you.Or:You put that Bitcoin into DeFi/CeFiYou get 6.5% compounding interest.You HODL for ten years and BTC reaches $100,000But you now have 1.91 BTCYou have $191,000That's 19x your initial buy-in. Nearly twice as good as just HODLING.I urge you to play around with a compound interest calculator.If nothing else, it should show you the value of thinking in longer timeframes.Currently, the best bank accounts are offering under 1% interest. Which means you're actually losing money after inflation. On the other hand, staking is coming to Eth and DeFi isn't going anywhere. There are risks with DeFi, and using crypto custodians is philosophically at odds with the dream of pseudonymous digital cash.That's for you to think about. But use the calculator above, plug in some numbers, and see where 12% interest gets you in 20 years. Even if you just used fiat, that would get you pretty far. Now think about getting even 5% return on Eth or BTC. Now think about what 1 BTC or 1 ETH will be worth then. Factor in dollar cost averaging on top of that. And you're risking it all chasing pumps every day?Slow down, and consider the safe, boring, options. You might be surprised where you get to in a few years.
Submitted November 27, 2020 at 06:18PM
No comments:
Post a Comment