It was 8.30pm when the notifications on my phone starting pinging like crazy. The world wasn’t going to end, but the crypto markets looked like…
Crypto investors pride themselves as HODLERS with diamond hands.
But is it true?
Assets may be different but human behaviour doesn’t change. Just like stock investors who say they are in for the long term but panic sell when the market crashes.
So it isn’t surprising that crypto investors will dump their holdings when things turn south too fast. And that was what happened on 19 May 2021, when some cryptocurrencies dropped as much as 50% at one point in time.
Here’s a snapshot of the bloodbath:
I have owned cryptocurrenices since 2014. It was when bitcoins were selling for $400. I sold most of it at $10,000 when I thought it was all too crazy in 2017.
I bought bitcoins again in 2020 at $12,000 and I told myself never to sell again.
This time, as I saw the prices fall in front of my eyes on 19 May 2021, I am not selling.
Here’s why:
#1 – I invested in cryptocurrencies for web3 potential
I didn’t buy crypto because I want to be rich in a short period of time.
If you have bought crypto because of FOMO and wanting to get rich quick, it is likely that you would panic and sell during this crash. This is because you cannot accept an alternative outcome – becoming broke. Hence, it is likely you would want to sell before it gets worse.
Investing into something because you think it will make you rich is often one of the worst reasons to have.
I invest in crypto because I believe in the possibility of a new internet.
This was described in the book, Token Economy, by Shermin Voshmgir, which I adapted into one of my presentation slides recently:
Today’s internet is dominated by big tech and we are running into all the antitrust and privacy issues because of that.
Web3 is about creating a decentralised version of the internet where power should not be in the hands of a few.
It is definitely utopian sounding, or may even strike a resemblance of the “Communist Manifesto”.
I don’t believe 100% of it because decentralisation cannot be achieved for practical reasons. There will still be a few key figures who will chart the future of crypto (for example, people like Vitalik Buterin, co-founder of ETH).
It is also very expensive to decentralise everything. Think about having to ask everyone in the family for approval to use the toilet. That is one of the reasons why transaction speed is so slow on the blockchain.
Hence, I believe the current internet and the crypto-driven internet will co-exist at the same time. Some things are better done on the centralised internet (e.g. sending an email or streaming videos for speed) while others are better off on the decentralised internet (e.g. VPN for privacy and ownership via NFTs).
Have the web3 potential been realised at the moment?
Nope, there’s definitely a long way to go. So why sell when my thesis is still in play?
#2 – I allocated a risk budget for highly volatile investments such as crypto
I adopted Taleb’s barbell approach to building a portfolio – allocate 90% of the capital into conservative investments and leave 10% for high octane plays. Even if the 10% blow up and goes to zero, I would still have 90% of my capital intact.
I did not go all in into crypto. It is just one of the many possibilities I invested in. It is less than 10% of my investment capital. I didn’t “go big or go home” because I didn’t invest in crypto to make me rich (point #1).
The barbell structure helps to put things in perspective for me. If I only stare at the crypto portfolio as it crashes, it would be devastating. But if I see it as a small part of my overall portfolio, I wouldn’t worry too much about it.
It helps strengthen the psychology and put the mental accounting bias into good use.
#3 – I bought bitcoins early enough and altcoins later
I bought bitcoins for the second time in 2020 at around a price of $12,000.
My thesis then was more of a hedge against the loose monetary policy adopted around the world. But it subsequently developed to something bigger – web3.
Even after a 30% drop from the high, I am still sitting on good profits.
This helps greatly as I may not feel as confident if I have bought it at $50,000 and see it crash to $30,000. The psychological impact is different because we have price anchors.
I even make it harder to sell by keeping my core holdings in a hardware wallet, quoting my previous article:
There’s another advantage of storing the coins in the hardware wallet – I don’t get to see how much they are worth and hence I would not get emotionally affected and have the urge to sell. This is something that I have learned – human behaviour moves in the path of least resistance. So if I don’t want to sell my coins, I should increase the resistance in that path of selling. I stored the coins in the hardware wallet and in turn I locked the wallet in a safe. It takes more effort to want to sell the coins now and it makes me tired thinking of going through the hassle.
I am not selling but you might be different
I have laid out my thoughts why I am not selling my crypto.
But you might be in a different situation. You might sell if…
- You have invested money you couldn’t afford to lose.
- You have taken leverage and now getting a margin call.
- You got caught speculating and have no reason to buy crypto except thinking it would make you rich.
- It is affecting your sleep and mental health.
These are definitely bad scenarios. Losing money is bad but losing your sanity is worse.
Live to fight another day.
p.s. markets have stabilised, some coins have since recovered.
p.p.s. Chris, our go-to crypto investing trainer will be sharing how he and his community find, evaluates, invest and manages their crypto portfolio. You can join him as his live webinar here.