Cryptocurrency is an Emerging Market
To know where you’re going, you need to know where you are. Entering and finding success in the crypto market has become a goal for both new and seasoned investors.
Unfortunately, many choose to forego understanding current conditions when taking action, making them vulnerable to experiencing two potentially devastating phenomena.
Like looming monsters in the dark, these two things are ready to pounce at the least opportune times, potentially costing the success of a portfolio. Here, we’ll explore the cause and cure of both so that you can steer clear of the fear.
Cryptocurrency is an emerging asset class, which makes it new to everyone. The 4-year market cycle makes crypto loosely predictable over the long-term but complicated in the short-term. To add fuel to the fire, crypto is often getting press attention as either a big opportunity or a major liability.
For this reason, people new to the industry become aware of crypto either because it is at a dramatic low point or because it is soaring upwards. The swings of the market are highly compelling, especially the fluctuation between bull and bear markets.
A bull market happens when the market overall is on its way up, which means the price of the assets you’re investing in is increasing. A bear market is the opposite. In a bear market, the price of cryptocurrency is going down, and the value of the asset you are holding is decreasing. Both have opportunities and precautions.
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Why Self-Awareness is Key in Crypto
Over years of talking with new crypto enthusiasts, we’ve understood that the circumstances that have brought people to crypto greatly affect perception. Learning about crypto during a bear market makes people naturally apprehensive, and learning about it during a bull market makes them ambitious and excitable.
In both cases, these perceptions are pre-paving potential disaster. An enthusiastic investor in a bull market is likely to invest to jump on the bandwagon when prices are high, not realizing that a bull market with falling prices might be around the corner. A resistant investor during a bull market will miss out on the chance to buy in when prices are low, sacrificing potentially life-changing gains.
Understanding that markets rise and fall is key to your ability to stomach the volatility – the dramatic swings that change the value of your holdings.
Read on for two things you need to be aware of when thinking about investing in cryptocurrency. What are they, and how can you avoid them?
Phenomenon #1 – FUD: Fear, Uncertainty and Doubt
FUD has a tremendous power to impact rash investing decisions. FUD normally associates itself with a declining bear market. FUD is the influence of Fear, Uncertainty and Doubt.
Like an anxious hand-wringing goblin on your shoulder, FUD is constantly second-guessing whether you’re doing the right things. It prompts you to check the news, check your crypto apps, ask your knows-nothing-about-crypto neighbor, and phone a friend. FUD causes a level of frequent or constant angst, pressure and confusion.
FUD often affects people who don’t have a depth of knowledge or understanding of the investments they’ve made. Perhaps the bought in at a high point, prices are declining and nail-biting has become a daily habit. They may have invested more than they could afford. Or, they may have done everything right and are simply being swayed by the negative messaging from media outlets, friends or family.
Ultimately the goal of investing is to make money and to make money grow. If the intensity of FUD is overwhelming, there is a great likelihood that you will sell at the wrong time and recognize loss. Often, patience and waiting – even over a long period – will regain the loss and increase the initial investment, accomplishing the goal. Selling lower than you bought will not.
Avoiding or Decreasing FUD
Derek talks more about his experience coming to the cryptocurrency space at the beginning of a three-year bear market in the partner video to this post. Fortunately, he was being mentored at that time by investors with extensive experience navigating volatile market swings.
Mentors suggested that the bear market was a time for learning, building and accumulation. He spent months studying the previous cycles to learn more about crypto-specific trends. He explored blockchain technology itself, delving into wallets, NFTs, decentralized exchanges and key alt-coins to watch. He also worked to cost average into the market to accumulate more coins. Cost averaging is the practice of investing regular amounts across time regardless of price.
A bear market is like a winter – if you’ve made difficult decisions or are unprepared, it may become a time of survival and protecting your portfolio by focusing on other sources of revenue, building new ventures or learning new, exciting developments in the industry. This will help you stay focused on your long-term plan, prepare for the next bull market and duck the wave of media hostility native to a downturn.
As always, be wise, do your own due diligence, look beyond the hype and make your own decisions on your moves. You may choose to reference 2-3 trusted mentors or teachers to support your process in times you feel stuck. Make sure they are experts, as many of the loudest voices fueling global FUD are those who know the least about the industry.
Phenomenon #2 – FOMO: Fear of Missing Out
FOMO is the Fear of Missing Out, and it traditionally happens during the intense incline of a crypto bull market. Sometimes, a coin can increase in value by hundreds or thousands of percent. Crypto increases are incredibly dramatic, especially compared to the stock market.
The stock market also experiences bull and bear cycles, and each company on the stock exchange also has its individual swings in market and price. Yet, the dramatic gains and losses in the crypto market are unheard-of for traditional stock market investors.
When we’re looking at cryptocurrencies, Bitcoin as the original and most highly invested asset tends to move and be followed by the alt-coins. Alt-coins are any cryptocurrencies other than Bitcoin. While alt-coins are typically smaller than Bitcoin as they had a later start to growth, the newer alt-coins can also be the most productive.
During crypto bull cycles, the promise of getting rich quickly is on everyone’s tongue. It draws hopeful investors of all kinds into the fray. FOMO is like a frenetic and overly enthusiastic gremlin leaping up and down on your other shoulder, begging you to buy in with every last financial morsel available. It tells you to act or miss out. The noise and pressure here are often motivated by greed and unreliable influence.
An investor may be compelled to “FOMO in” and buy cryptocurrency at the top of the bull cycle – the least productive time – only to watch the market retrace and see that investment suffer losses of 50 percent or more.
FUD and FOMO are Opposite Friends
As the market retraces, FOMO hands off to FUD. That spirited Fear of Missing Out has a reality check that causes a strong dose of Fear, Uncertainty and Doubt. Left unattended, a difficult cycle of the two can begin, causing extensive challenges for its victim.
Human nature is to hope for the best and expect the worst. It is a challenge to eliminate FUD and FOMO completely from the emotional spectrum, especially in the depths of a bear market or the highs of a bull market.
Wisdom and a discerning mind will stay on planned target and avoid being shaken out by temporary emotional distress. A plan, knowledge and perseverance can prevent or decrease the impact of these two phenomena so that your plan stays your own.
What to Do if You Lost Money Investing in Crypto
One of the saddest experiences for an investor is to realize that he or she got in at the wrong time, and it may now be a prolonged time of consequences. This realization is a powerful teacher that can make a much more formidable decision maker in the long-term.
Capitalizing on the lessons of FUD and FOMO means making changes so that you buy low, sell high and avoid hype. Be honest with yourself about the moves you made, should have made and should have skipped. Have or reset your plan with this knowledge incorporated.
If you have prepared and planned the decisions you’d like to make beforehand, considered different outcomes good and bad, and decided on how you might adapt, you’ll be in a much stronger position to respond to expected and unexpected changes.
The ethos at Cryptofluency is a long-term mindset so that you have the time and space to realize the gains on your investments. This is a community of life-long learners. We invite you to join us in the OG Membership or the Inner Circle Group. Stay strong.
