On Finding Gold and Silver By Searching Through a Hot Pile of Garbage
Yet again in the history of crypto, a crypto bubble is popping and Bitcoin’s weakness is rubbing off on alts (most of which are exaggerating Bitcoin’s losses over time). In these times it helps to zoom out to look at how crypto holders made gains over time despite events like this in the past.
NOTE: Look a the chart below for a quick visual that shows how Bitcoin’s price manages to creep up over time despite it going through a number of crashes. Many, but of course not all, top alts have followed similar paths.
What is happening today looks a lot like what has happened in any past crypto bubble. That is, whether we are talking about 2013 – 2015 (the big one everyone remembers or remembers hearing about), the altcoin bubbles of the summer 2017 (never recovered from those in some cases in BTC prices), the first bubble of 2013 for Bitcoin (that wasn’t actually that painful), any old Bitcoin bubble from 2010 – 2013, or any random altcoin bubble along the way…. we have seen this before essentially.
Those bubbles didn’t all work the same exact way, but they all had a similar feature of resulting in most if not all gains given back eventually.
This pattern can be frustrating, because it is like crypto punishes you for sticking with it and rewards you for trying to sell the top and then shorting it like it is a pile of hot garbage.
Yet, despite all that, somehow crypto manages to squeeze out the most absurdly high returns of any asset class over time, doing so in what is a relatively short amount of time compared to other asset classes.
Meaning that even though crypto feels like it punishes holders in the short and medium term outside of its manic bubbles, if you zoom in far enough, you can see that it actually ends up rewarding holders more than anyone other than expert traders over the long haul.
Let me illustrate what I mean using Litecoin (a coin that “feels pretty bad” to be in if you bought the top):
In the first half of 2013 Litecoin went from about $0.50 cents to $1.50. Yay.
The in the second half of 2013 it went from a low of $1.50 all the way up to $30 – $40 (?). Maybe Litecoin is the new Bitcoin people thought?!….
… But then it went all the way back down to $1.50 by 2015 in a long painful grind downward while Bitcoin went through its correction (there was a giant crypto bubble in late 2013 that burst over the next two years).
Man was it bad, you can see it on a chart, where Bitcoin would recover Litecoin would only a little or not at all, but when Bitcoin would fall Litecoin would too.
Thus, unless you bought in during the first half of 2013, you got punished for trusting in that filthy digital handful of Silver to Bitcoin’s Gold at any point in 2013, 2014, or most of 2015 (meaning if you HODL’d, you got rekt; there were trading opportunities along the way if you took them, just like 2018).
Not only that, but if you bought at the time when most people did (at the height of 2013 crypto mania), you lost up to 95% of your investment on paper (or in real life if you sold).
Truly, $30 Litecoins were probably the biggest mistake of your life at the time (let’s not even talk about the one day where you could buy $40 Litecoins), and heck even $5 Litecoins felt pretty bad by the time 2015 rolled around.
I mean, imagine trying to average down, you are dropping your life savings on internet money and ending up with average $10 or $4 Litecoins. The reality is it could have been higher because Litecoin spent a good bit of time between $15 – $25 (most of 2014 in fact)!!
If you went on chats experienced traders they would have made fun of you and those who “got in early” in 2013 would have been talking about their gains. Your parents probably made fun of you, your spouse might have left you, life was bad. The evil pump and dump-ster fire had consumed another soul, and it was yours (?). Ah well, Jamie Dimon warned you, and you didn’t listen, you pleb.
Yet, and I think know you know where I’m going with this, fast forward to 2017 and Litecoin finally makes its way back to $30.
Oh man, sweet, now you broke even on your $30 Litecoin and hey, if you averaged down at all you now actually have profits.
But then wait there is more, it hits $100… dang then $45… but then $400!!!!!!
Oh wow, you just got 10x+ even if you bought the top on that one day in December 2013…. and you know what, if you averaged down, you are now looking at as much as 100x.
Jamie Dimon’s stock only went 3x in that time… so who is laughing now (probably still him since he is the CEO of JPMorgan Chase, but still). <—- Jamie Dimon has been talking smack about Bitcoin since 2014 if not before.
And you see where I am going.
Even if you capitulate today, if you bought in 2013 at any point you now you made some decent gains (never mind if you averaged over the coming years).
Yet, let’s be honest. If you stuck with crypto and bought again while it was higher. You are dead yet gain just like everyone else (because you made the mistake of trusting the dumpster fire).
Worse, if we keep dropping people will come out of the woodwork to capitulate and in the process drop prices even further.
Crypto can suck in the short term as a holder, it really can. Still, if you 1. BUY LOW 2. HODL and 3. RESIST THE URGE TO BUY HIGH (FOMO) AND CAPITULATE (FEAR), then over time history shows you have tended to do well up to this point (we can’t see the future, so we don’t know how your future self will do).
Point being, it might feel hopeless, and it is probably gonna get worse… yet, at some point, crypto just might repeat historic pattern and reward those who managed to find anything close to the bottom.
Is the bottom going to be lows from the second half of 2017? Will it be lows from the first half? Is crypto dead for real this time? If only I knew I would throw my life savings on a long or short position at the right time. Unfortunately, I do not. All I know is what historic data looks like and what a general market cycle looks look. In those terms I know we are on the popped side of an economic bubble, but I also know in crypto that tends to be only a step in a grand cycle and not the end.
Summary: Bitcoin has bubbled and busted just like we were warned by our elders, and as bad as that was for Bitcoin, it has been worse for alts. Of alts that survive, if historic patterns hold, we might hope they get to their lows from the second half of 2017 and then gradually make their way back up over time. If patterns repeat, holders might just end up turning their 90%+ losses into gains over time, but to increase the chances of that, one likely wants to average down…. of course, that means increasing exposure and taking greater risk (not just financial risk, but risk Jamie Dimon is going to make fun of you and hurt your feelings). Remember, don’t gamble more than you can afford to lose, because of course crypto could be dead and sink to early 2017 levels or below and potentially never even recover.