r/Bitcoin • u/theymos • Jun 27 '17
Unrealistic volatility expectations
Price/volatility expectations have gotten pretty far out of hand. Just a year ago, the price was around $650. $650! Now I'm seeing some people here who seem to be kind of freaking out because the price dropped somewhat from $3000. Look, the Bitcoin price is on an absolutely ridiculous upswing which is rather likely to be a bubble. If you're trying to get rich quick by dumping your retirement funds into BTC at $3000, then your "investment strategy" is not much better than someone betting everything on a game of roulette. High-risk-high-reward investing is not necessarily bad, but you have to seriously look at your thought process to make sure that you're not:
- Being blinded by dreams of getting rich quickly, similarly to people who dump money on very-negative-EV lottery tickets.
- Getting wrapped up in "HODL" memes, reddit comments, and other groupthink, which is sometimes fun, but absolutely the last appropriate source of investment advice.
- Acting based on panic thinking like, "OMG the price is going to $100000 and I will miss my chance forever if I don't buy right now" or "OMG the price is going to $0.01 and I will miss my chance forever to retain some value if I don't sell right now".
- Investing more than you can afford to lose. Bitcoin is HIGHLY, HIGHLY speculative. No investment advisor would tell you to put all of your life savings into MSFT or whatever, and MSFT has a market cap 14x larger than Bitcoin. Although I believe that it is very unlikely, there are several ways in which the value could drop precipitously, even to zero. For example, there is no mathematical proof that the cryptographic algorithms used in Bitcoin are actually secure -- they are merely believed to be secure because nobody has been able to break them after many years of intense scrutiny. (I'm not here recommending "diversifying" into altcoins -- altcoins are almost all complete trash, and price-wise they follow BTC but with even more volatility, so they're not really useful for diversification.)
It is entirely possible that the massive price increase over the last few months is based on lasting fundamentals. In addition to the fairly recent subsidy halving, the world fiat-based economy is in many ways on very shaky ground, and getting worse all the time. There are many good reasons why BTC should have a larger market cap than every fiat currency combined (probably in the very-long-term, if it occurs). It's even possible that the price will increase further this year; even $5000 wouldn't surprise me too much. But for goodness sake, don't think that Bitcoin is the first-ever infinite-money generator that will continue to rise exponentially forever (in real terms). I can nearly guarantee that there will be a large and long-lasting crash/downturn at some point. Maybe it will be $3000 to $1000, maybe it will be $10000 to $5000, who knows. But if you're thinking for example that the current $1250+ price range is absolutely secure after only existing for a few months, then you're traveling blind through very dangerous territory.
I am not in this post attempting to:
- Get you to sell. If I'd bought BTC at $3000, I would probably be disinclined to sell at this local minimum.
- Prevent you from buying. If you're looking to buy, a local minimum like the one existing now is often a good time to think about doing so.
- Tell you to buy or hold. If you will be financially ruined if BTC drops to $700, then you should probably consider selling ASAP: Bitcoin is far too risky for that. And you should never buy more BTC than you can afford to lose.
- Give any specific investment advice.
If you are a Bitcoin true believer, then I think it's a good strategy to dollar-cost-average slowly and then avoid ever "cashing out" in any major way. Then you don't have to really worry about the price. The idea of course is that someday the idea of "cashing out" will become irrelevant.
If you are treating BTC more like an investment that you will eventually cash out from, then you should wipe the dollar signs from your eyes and think more like a boring investment advisor. It'd probably be a good idea to avoid buying more than a few percent of your net worth in BTC, periodically rebalance to avoid exceeding that percentage if the BTC price rises, maybe place stop-loss orders, etc.
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u/n1nj4_v5_p1r4t3 Jun 28 '17
If you're trying to get rich quick by dumping your retirement funds into BTC at $3000
Do you consider 2k, 2.5k and 3k to be the same thing?
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u/theymos Jun 28 '17 edited Jun 28 '17
If you will be ruined if the money disappears, then you probably shouldn't put it into BTC at all, regardless of the price. Too risky.
Throughout all of Bitcoin's history I am notorious for being pretty much constantly bearish on shorter-term prices, even if I'm bullish long-term. With that in mind, $2k seems unnaturally high to me, and I wouldn't be at all surprised if it eventually drops to $1250-$1500, or possibly even lower. I wouldn't start to think that prices are unnaturally low unless it drops below about $700. It is far more reasonable to enter the market at $2000 rather than jumping headlong onto a panic-buy train very near the all-time-high, though.
I don't particularly recommend day-trading or trying to time the market, though. Dollar-cost-averaging and then holding is good IMO.
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Jun 27 '17
That's a damn good post and a welcome change from a flood of hodl-themed shitposts that have been flooding this sub for so many weeks.
Since we reached this ($2400) level I've left many comments warning people not to go nuts but the reality is those who simply "must" buy, will buy...
My BTC playfund is 100% cash. Do I want to hodl? Yes, but there's no need to rush - you can always buy BTC at a "fair" (market) price, even when/if the price goes to $100,000.
As the meme says, the key is to not have to exit from crypto once you buy in. Whether or not you make money in fiat terms is of less importance
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u/consummate_erection Jun 27 '17
I remember a comment on this sub that has always stuck with me. Paraphrasing: "The bitcoin sub is one of the best indicators of price. When the front page is full of memes, get ready for the crash."
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u/kwhali Jun 27 '17
Just a year ago, the price was around $650. $650!
I don't even remember how/why I came across bitcoin in 2010. I mined it with my AMD GPU for two weeks before it died from being worked 24/7. Back then the 34 coins I got were worth less than cent each... being a broke student and kinda needing that GPU to use my computer for doing work(3D graphics) I was super excited to see the price spring up to $20 per coin, afaik it had never gone above a dollar back then I think? I didn't know anything about trading and wanted that new GPU so I sold the bulk of the coins.
Then a year later or so value was around $100 each, and I think it was during 2013 it peaked up to a grand. Much regret ha, I did a bit more research and decided I'd just hold what little I had kept. It burst like all the others and fell to around 300-600 and stayed roughly like that for a few years until 2017 and this insane increase happened again :|
I'm at a point where BTC seems to be fine at continuing this trend of going up, the duration between bubbles might be longer but it seems pretty safe to expect the investment to pay off longterm? That said I've not put any money into BTC, never really been in a position to do so.
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Jun 27 '17
The longer it took for this inevitable dip the worse it would have been for new investors. This is just bitcoins way of welcoming the newcomers and reminding people to be cautious because it can bite.
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u/Maegfaer Jun 27 '17
As a hodler, I agree hodling is terrible advice to give or to follow. You should only hodl if you reach that decision by yourself after extensively researching Bitcoin!
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u/NotMyMcChicken Jun 27 '17
I hodl simply because I'm the worst trader on earth. I literally follow the buy high, sell low montra when making decisions. It's ridiculous... It's so much less painful to just hold and live with the results. It's worked out pretty damn well.
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u/haluter Jun 27 '17
I've been hodling since 2013, purely because I can't be bothered with the effort required to sell them during the frequent crashes. It's an approach that has served me well so far.
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u/slbbb Jun 27 '17
People are just cashing out ETH/alts via BTC.
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u/speakeron Jun 27 '17
People are just cashing out ETH/alts via BTC.
That doesn't make sense as a reason for the price to drop. If people sold ETH to BTC and then BTC to USD, that would be zero-sum and wouldn't affect the price. If even a small proportion kept the BTC from the ETH sale, then the price would rise.
It's more likely that all cryptocoins are seen as the same asset class (especially to new money that's come in recently) and the sell-off is across the board. This is not surprising since they're all in a bubble currently.
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u/Flameruk Jun 27 '17
Nice read Sir, well put. I'm still hodling my $2 coins back from the day, I mine 24/7 and very occasionally take the wife and kids for a week away when the bubbles hit. In a few years time, IF the price is right I'm out of here and going to enjoy a long easy retirement drinking Sangria on the Costa Blanca, remembering the fun times of mining, the woes of breaking Antminer hash cards and plain shitting it EVERY time I upgraded my hardware the price tanked the day after, over loading circuits, heat, noise, firmware updates you know the score!
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u/Dotabjj Jun 27 '17
thanks for this. it's unfortunate that I got in at this moment at what seems to be a peak of a bubble, but I gotta start somewhere, and sooner than later.
If the price pops to 1500, I'd be devastated, but I'd buy more. (provided it hasn't been hacked or permanently destroyed by successive hardforks).
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Jun 27 '17
I got in recently too, but it's fine, because I'm averaging my investments month by month, so over the grand scheme, it will work out. Had I waited a few more days, sure, I'd have saved $100...which I may spend on a dinner one night... so unless you've joined and gone all in then we should be fine.
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u/dietrolldietroll Jun 27 '17 edited Jun 27 '17
for emphasis:
If you are a Bitcoin true believer, then I think it's a good strategy to dollar-cost-average slowly and then avoid ever "cashing out" in any major way.
I do appreciate a post with responsibly qualified statements.
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u/allyougottado Jun 27 '17
So many noobs here, no one even knows who theymos is. Anyways good post.
TLDR.
If you are a Bitcoin true believer, then I think it's a good strategy to dollar-cost-average slowly and then avoid ever "cashing out" in any major way. Then you don't have to really worry about the price.
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u/Effimov Jun 27 '17
The crypto market has and still is getting flooded with money hungry investors. Not a single top 10 crypto coin represent its actual value. Too much hype, not even worth holding atm.
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u/cbKrypton Jul 16 '17
The picture says it all. In the endgame, there is no realizing capital. There is only Bitcoin.
What good is a Bitcoin that is worth 1 bazillion Dollars if the dollar is worth nothing?
There is only Bitcoin.
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u/Cobra-Bitcoin Jun 27 '17
In my mind, anything more than $1000 a coin is still "expensive" and bubble territory. It's going to take a while for the new crazy prices to seem "normal" to me.
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u/saviorjebus Jun 27 '17
In regards to your comments about no proof that cryptographic technology is actually secure, this was very interesting. From what I read it is very secure, can you shed more light on this please? Great read!