The first question you need to ask yourself before buying (or short selling) any asset is, “What is my Time Horizon?”. The answer to this question is the number of minutes, hours, days, weeks, months or years in which you expect to see the desired return on your investment.
If your answer to this question is minutes, hours, days or weeks, you’re looking to TRADE the market. If its months (debatable) or years, then you’re looking to INVEST in the market.
Crypto being the extremely volatile asset class it is, with >30% moves in a single day, can be an experienced trader’s dream and an inexperienced one’s doom. Which is why 95% of us will be better off investing in this market, rather than trading it.
Below is a chart that tracks Bitcoin vs USD in the 2013 bull run.
In the span of just 9 weeks, Bitcoin went from a measly $100 to $1177, a 1080% increase. (chart below)
This was followed by a 14 month “bear market” where BTC saw it’s price drop -86% all the way back to $164 in Jan ’15. (chart below)
While this insane volatility was an absolute gift for professional traders, average investors trying to buy the bottom and sell the top got destroyed.
A large chunk of retail investors ended up buying near the top and saw their investment drop everyday, eventually conceding and selling for a loss.
On the other hand, a true investor with a Time Horizon of 5 years saw his investment grow by a massive 9300%! (chart below)
The same thing played out once again from 2017 to 2019. Bitcoin went from $1815 all the way up to $19,764, a 990% gain, before dropping back down to $3148 for a -84% drop. (chart below)
Again, a true investor holds through volatility with a longer time horizon and is rewarded with an amazing 3500% return on his investment. (chart below)
I know this looks obvious in hindsight and that I’m only stating historical facts, but history often rhymes. What you should take away from this is that the average investor is way better off “Investing” in an asset he/she believes in, with a long enough time horizon to offset any short term volatility.
Cut to today, Bitcoin sits at around $35,000 after some of the highest levels of volatility it has seen in a long time. And once again of course, people are panicking and are unsure of their investment decisions. Maybe this chart (and a longer time horizon) will help ease your nerves. (chart below)
Which now begs the question,
Are you a trader, or an investor?
(All content presented in this blog are my sole ideas and should not be the basis for any of your financial investment decisions. Tl;Dr — I know nothing and am just rambling. Make of it what you will.)
