5 Things I’ve Learnt Trading Crypto
I wonder if this is the case for everybody who first got into crypto:
“Hey Ben. Have you heard of ADA coin?”
“No, ADA coin. It’s crypto.”
“Um… no. What about it?”
“I think it’s going to be big. You just need to buy $1000 worth of it and hold.”
I politely nod in agreement. I didn’t think much of cryptocurrency then. So the conversation eventually shifted to something else. At the end of it, we parted ways and I left for home.
But then, I couldn’t stop thinking about crypto. I went home that day and spent the rest of the evening reading up about crypto and how to get involved.
I was poisoned… and it’s now spreading to all my extremities.
I grew up in Malaysia—a country tucked between Thailand and Singapore—and as a kid I watched a fair bit of Hong Kong television series and movies. I think anyone who grew up during the 90s would have seen, at least once, the character of a father, uncle or brother (always a male) in the movies who returns home one day after having gambled all of his family’s savings on the stock market.
That’s the idea that’s been drilled in to me from a very young age: that messing around with stocks is bad. So I’ve never had an interest to find out more about it. Also, I only had one friend who invested in stocks, and he was from another country, so he must have been an outlier. All my other circle of friends didn’t dabble in this.
So prior to the conversation with my friend above, crypto was only something I had read about online. All I knew was that they are these digital tokens (cryptocurrency, a.k.a. crypto) that are given out to people who help to keep a network of decentralised financial ledgers up-and-running. And that the underlying technology of it is called the blockchain — of course, there’s much more to it than I am aware of, but I’m sure you can Google that yourself.
I also knew that cryptocurrency was a very volatile asset class, maybe even more volatile than stocks. Naturally, I treaded crypto-land like a little boy on thin ice. But nothing was going to prepare me for what I was about to experience.
I started off with just about $100.
That was all I thought I was willing to lose should the worst happen. This was going to be my tuition fees of sorts to learn about the new territory of cryptocurrency.
I purchased my first batch of Ether on May 3rd and was very cautious about how much I spent. It felt as if tapping the wrong button would lose me all my money forever. I bought about $25 worth and then waited.
I noticed the value of that 0.0077 Ether was gradually climbing, so I bought another 0.0113… and another 0.0115. by now, I had spent all $100 on Ether and the only thing to do is to wait for it to increase in value over time.
Because that’s what you do when you’re INVESTING: you purchase some asset that will appreciate in value over time and you WAIT.
Then I saw the candlestick chart…
There’s something mesmerising about watching your money grow in front of your eyes without you needing to do anything. It’s almost magic. While there were ups and downs in the value of the Ether I was holding, it was generally on an uptrend. So I thought to myself, “Could I not sell it while it is at the top and then buy at the bottom to make a quick buck?”
Would you not all think that way? Or am I the only idiot here?
So I did just that. I looked at the charts, looked up some videos on YouTube and I’m now an expert at day trading. The first week was good. For someone who had never done this before, I was able to make a $10 profit out of that.
Then came the thought, “If I had $1000, that profit would have been $100!”
Eventually, I had close to $2000 in crypto and I was trying to make trades which would net me a profit. I was going at it for a week or so until the Correction arrived on May 10th.
It was a bloodbath. Litecoin, for example, lost 2/3 of its value. Bitcoin was valued at less than half of what it was at its peak. What that means is that if people had $100 of crypto on May 10th, it would be worth about $50 by the 24th.
Imagine what that had done on $2000…
Here are a few lessons I learnt from this, which can be applied beyond crypto:
- The Dunning-Kruger effect is a real thing—Never risk what you’re not prepared to lose when going into something new, be it a business venture, stocks or crypto. You might think you know what you’re doing, but the chances are that you don’t know what you don’t know yet.
- Have a stop-loss in place—Always be prepared for things to turn ugly no matter how well things seemed to be going for the time being. We will never have all the information necessary in order to safeguard ourselves from black swan events. Be prepared.
- Two heads are better than one—I was new to crypto and thought I could figure things out on my own. I would have greatly benefitted from a friend who has more knowledge to point me in the right direction or give me a heads up if there’s something awry.
- Begin with the end in mind—Don’t get sidetracked and seduced into doing something else. I think this is especially true in the financial world where there is the promise of making a quick buck at every corner. If you went in for something, keep your eyes on the prize.
- Have a strategy and be disciplined in keeping it—Whether it’s investment, business, or anything in life, I think we can’t go wrong by having a strategy. The problem is that we may not be disciplined to keep the strategy. If we don’t have a strategy, we are shooting in the dark. If we have a strategy and not using it, we are bringing a knife to a gunfight.
Creative Lead by day, writer by night, husband and dad throughout. I write about things that interest me and lessons I’ve learnt. My views are my own. Check out other things I’ve written.