Five investment lessons from the cryptocurrency crash of 2018

Abhimanyu

“Bitcoin is going to the moon! It’s a great time to invest in altcoins”, my colleague at work casually told me as we grabbed our lunch.

I was immediately drawn to the idea given the amazing returns cryptos gave in a short period. As someone who has been investing in stocks since 15, I knew this was different. The gains were unbelievably quick and the market was highly volatile.

I decided to give it a go on one condition — I will only invest what I can afford to lose

So, I started investing my vacation and weekend outings money into cryptocurrency. As the altcoins rallied higher and higher towards the end of 2017, I became greedy and started investing more. Much more than what I had initially invested when the prices were low. I had disregarded the basic principles of investing!

The crypto market crashed in Jan 2018 and my portfolio crumbled like a house of cards.

What had once risen to 400% of my investment, had now come down to 20%. It did not impact my financial status, but I had to sacrifice a few vacations in the coming months to redeem the guilt I had for losing all the money. On the bright side, there were many powerful lessons that I learned during that time, something you cannot understand just by reading books. So, here are five investment lessons I learned during the crypto crash of 2018.

1. Do Your Homework — Study, Study, Study

The American entrepreneur and best selling author Gary Vaynerchuk recommends all his followers to listen to his advice but do their 30–40–50 hours of research before investing their hard-earned money into anything.

Never invest in something you don’t understand, that’s what gamblers do.

I started investing in cryptocurrency purely based on a colleagues advice. I had no idea about the underlying blockchain technology, let alone the application and vision of the altcoins I invested in.

Risk comes from not knowing what you are doing.
-Warren Buffet

So, when the cryptocurrency market crashed, I had no idea what was going. I could not sell because I was at a loss and I could not buy as I had no faith in the currency. I was stuck!

2. Sell on the Rise and Buy the Dips

This is the most basic principle of investing, one that I did not follow while investing in altcoins during the 2018 crash.

What does it mean?

It means buying when the prices are falling to reduce your average cost and potentially make more profit in the future. If you wish to book some profit, then sell when the price is going up. It sounds simple in theory, but when it comes to investing with your hard-earned money, we tend to get emotional and do exactly the opposite.

Be fearful when others are greedy, and greedy when others are fearful.
-Warren Buffet

I started well, buying coins at low prices but I continued buying as the prices soared. In a panic, I bought way too much when the market was at an all-time high (ATH). As a result, my average cost went up and when the market crashed — I suffered heavy losses — notionally.

I eventually did reduce my averages. I’ll explain how in the next point.

3. It’s not a loss until you sell and vice versa

The cryptocurrency market is highly volatile. One day the prices skyrocket, next thing you know it tanks like it is falling in a bottomless pit. I never sold my coins! So, even after the crash of 2018, I did not lose real money. It was notional.

I had lost 80% of my wallet’s value. But I still had the same number of coins.

Although I had lost faith in cryptocurrencies, I bought altcoins worth a few more hundred bucks to reduce my average holding price. Here is an example of my average price per XRP:

Avg. Price in early 2017 = $0.2

Avg. Price after I bought XRP at its peak of $3.68 = $2.6

Avg. Price after I added more XRP at $0.24 in 2020= $1.15

Even though I had lost confidence in cryptos, I was patient enough to keep waiting. Eventually, the market kicked off again and now I have almost doubled my total investment. Not bad for someone who had lost 80% of it at one point. Patience and persistence always pay off.

Similarly, you do not make money until you sell your holdings. My portfolio had risen to over 400% value in 2018 just before the crash. But instead of getting busy selling, I was busy buying. And that was my biggest mistake!

You don’t score a goal until you score. Remember to sell on the rise and buy on the dips.

4. Never chase a coin… ever!

This is arguably the most important lesson of all time. I thought I will miss the bus if I don’t buy a rallying coin — I was wrong!

The biggest mistake I made during the crash of 2018 was chasing the rapidly growing coins for fear of missing out

A few years later the same coins were available at 5% of the cost. Have a look at this 1 year chart of Bitcoin. Even for a stable coin such as BTC, whose value increased over 400% in the last year, the prices have fluctuated a lot.

Someone bought it at a price as high as $63K, whereas a sensible trader would have remained patient and kept adding small quantities during the dips averaging it around $30-40K

So, always remember this golden rule:

Never sell in a panic and never buy during a euphoria.

The market will always give you another chance. And if not, move on to something else. There are plenty of other fish in the sea.

5. Don’t put all eggs in one basket

A popular English proverb that is quite relevant in the investment world, especially when it comes to high-risk assets such as cryptocurrency. It is unregulated and highly volatile. Even tweets from popular personalities such as Elon Musk can cause coin prices to jump or crash.

When all the cryptocurrencies took off this year, Ripple (XRP) lagged because of an SEC lawsuit. All those invested in Ripple are stuck. If it gets resolved, the days ahead are bright. But there is no certainty.

So, here is what I would advise based on my learnings so far — Diversify your portfolio so you have at least 3–6 coins that you can bank on. And try not to put all your money in cryptocurrencies, it is still in a nascent stage. Invest in other comparatively safer assets such as stocks and Mutual Funds (MFs). And only invest what you can afford.

If You Can’t Buy It Twice, You Can’t Afford It
- Jay Z

Final thoughts

Cryptocurrency is a highly volatile and risky investment. It could be a highly lucrative investment if you do your research and invest smartly. But make sure you only invest what you can afford to lose. And remember these five lessons that I learned from the crypto crash of 2018.

  1. Do your homework — Never invest in something you don’t understand, that’s what gamblers do. Do your research before investing Risk comes from not knowing what you are doing.
  2. Sell on the rise and buy the dips — Be fearful when others are greedy, and greedy when others are fearful. Contrary to what our emotions drive us to do, sell when there is a major rally and add up during the dips.
  3. It’s not a loss until you sell and vice versa — You don't score a goal until you score. You don't make a profit or loss until you sell your holdings. So, remember point #2. Sell on the rise and buy on the dips.
  4. Never chase a coin — The biggest mistake I made during the crash of 2018 was chasing the rapidly growing altcoins for fear of missing out. Never sell in a panic and never buy during a euphoria. The market will always give you another chance. And if not, move on to something else. There are plenty of other fish in the sea.
  5. Don’t put all eggs in one basket — Diversify your portfolio and buy 3–6 coins so you are not overexposed in one asset. Invest in other comparatively safer assets such as stocks, Mutual Funds (MFs). Only invest what you can afford.

Disclaimer:

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.

To read more of my content, please follow me by going to my profile.

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I write about the latest in blockchain technology, cryptocurrency and NFTs. I specialise in breaking down complex information into simple language so it's easy to comprehend even for non-technical folks. Sometimes, I also enjoy writing about life experiences that are relatable and can help others in one way or another.

New York, NY
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