Bitcoin… “I Swore It Was a Sure Thing”
In March 2016 a colleague of mine — for privacy purposes let’s call him “John” — heard the rumblings bitcoin and cryptocurrency were making.
Thinking it was all a bunch of hype and nonsense, he plugged away, putting money aside into his 401(k) and thought nothing of it.
He called bitcoin “fake money” and said that it had no tangible value.
With no product to back it up, he didn’t see what the big deal was.
Then bitcoin’s price jumped from $400 to $600. Then from $600 to $1,200. $1,200 to $4,000. Then $4,000 to $8,000.
The financial news media couldn’t get enough of bitcoin, with headlines predicting that it could easily reach $20,000. Other analysts were saying nothing could stop its rise to heights of $100,000 by the end 2017.
The fear of missing out, or FOMO, had become too much to handle, and John pulled the trigger on a trade.
He looked at his bank account and took out only money that he was willing to lose.
He purchased $198.00 of bitcoin and $298.60 of ethereum — another flagship cryptocurrency— on Dec. 12, 2017. The prices were $17,280.01 for bitcoin and $638.50 for ethereum, respectively.
He Waited and Watched…
At first, the week went well for his two purchases. While bitcoin’s price was sinking a little bit, ethereum’s movement gave him a net profit. No red flags yet, but it certainly wasn’t the explosive growth he had been seeing earlier in the year.
Then Dec. 22, 2017, rolled around and the bubble burst — the entire cryptocurrency market crashed and John’s account went into the red.
John held his positions until March 31, 2018.
Head down in defeat, John sold his two positions, receiving $80.75 for his bitcoin position and $187.87 for his ethereum position.
Overall, a 45.91% loss amounting to $227.98.
And he’s not the only one…
Millions lost their money as the cryptocurrency tumbled for the next year until finally bottoming out at almost $3,000 in late 2018.
And while it’s easy to say “I told you so,” there’s a lot we can learn from those who were swept up in the bitcoin hype.
What We Can Learn From John
Often, you’ll hear the phrase “buy the rumor, sell the news.” John heard about bitcoin trading years before when it was less than $100.
He didn’t pull the trigger, though, until the financial media got a hold of the rally and shares were already tens of thousands of dollars higher.
This was his first mistake. He got caught up in the fear of missing out and paid heavily for it.
His second mistake was not setting his own investing rules ahead of time.
For instance, if he had put into place a “mental stop” of 25% gains or losses, he would have cut his losses early and would’ve been able to recoup 20% more of his cash back.
There are, however, some things that he did right in his purchase.
He wasn’t using the grocery money to try to win it big — instead, he wisely only used money that he wouldn’t be heartbroken over if he lost.
Furthermore, John didn’t double down to make up for his losses when prices dropped.
Had he done this, he would have been even more in the hole as prices continued to drop for another nine months after he sold.
The moral of the story…
Size your positions, avoid hype and set your trading rules ahead of entering a position.
This is especially true when trading high-flying assets like crypto or small-cap tech stocks.
Just a couple of extra minutes of planning can save you from losing your shirt on the next “hot” buy.
For Technology Profits Daily,
Chief Technology Expert, Technology Profits Daily