Everything looks crystal clear in hindsight. I hesitate to use the word “should”, because what I’ve done has lead me to where I am today. However, in this letter I am going to use “should” to illustrate what I plan to do in the future when faced with similar circumstances. At the height of the recent bull run, I decided to diversify into a couple of projects on Binance Smart Chain. I did this for a couple of reasons
I was looking to experiment for the sake of learning
If you’ve read my previous letters then you know that I am not a big fan of diversification. So I admit, that I broke my rule of diversifying into alternative cryptocurrencies. I’d say that the experience of learning was worth it, but at the same time, the pain of losing money still hurts.
The Gains are Hard to Resist
To be completely honest, the potential for gains is hard to resist. Seeing both the appreciation of the underlying asset, and the APYs associated with providing liquidity, or staking is not an easy thing to let pass by. The “altcoin casino” is an apt term given to the phenomenon of how easily, and quickly it is to lose money by investing in altcoins. The mission is to end up with more Bitcoin than what I started with. Unless you’re godly at keeping track of each and every trade, this is rather difficult to discern. What typically ends up happening, is if you invest in 10 different projects, 1 will cover any losses from suffered from the other 9. If this doesn’t sound like gambling, then I don’t know what does.
The Wrong Time to Invest
It is hard to spot the top of any bull run. We are arguably through with the first phase of the 2021 bull run, with the top being marked by Bitcoin’s $65k all time high. The top of any bull run, is the wrong time to diversify. The phrase that summarizes this quite nicely is the following.
Be fearful when others are greedy, and greedy when others are fearful
I got greedy at the apparent top, and thought it was a good idea to diversify some of my BNB holdings. Needless to say, it was not a good idea.
Everything is Worth 1/3 of What I Paid for It
The assets I got into on Binance Smart Chain were BTCST and CAKE, both of which have decreased by more than 60% since the time that I bought them. Because I was staking those assets in their respective platforms, I was not able to set an automatic stop loss. To save myself the losses, I would have had to manually been watching, and taking action to prevent significant loss of funds. One of the problems with having a diverse portfolio, is that it becomes difficult to organize, manage, and keep track of everything. During the crash, I simply felt overwhelmed because everything was in the red. It was very difficult in the moment to have the presence of mind to stop the losses from taking place.
What I “Should” Have Done
I need to pay more attention to stablecoins. I don’t like it, but I need to learn how to use them if I am ever to create a better balance within my portfolio. Whenever I am feeling like I need to diversify my portfolio, what I should do, is convert a certain percentage of my portfolio into stablecoin. If I had of taken this advice at the top of the bull run, I would be able to avoid much of the financial pain I have experienced in the last 3 months. Having a stash of stablecoin allows me to reinvest at the “bottom” (wherever that may be) instead of always being “all-in”.
Furthermore, stablecoins actually yield pretty good returns when you lend them on any number of platforms (ex. 10-14% on Crypto.com). So while I am waiting for an opportune time to deploy my saved up stablecoins back into the market, I can be earning a good “stable” ROI. Holding stablecoins can then serve a double purpose.
I can experiment on DeFi platforms with the stablecoins instead of the risky governance tokens
I can hold and earn with the stablecoins, then redeploy the capital into the market when the timing is “right”
Determining when the timing is right is another tricky thing altogether, but I do feel as though this strategy will provide a level of comfort and safety from market volatility.
An Evolving Strategy
My strategy is constantly evolving. I sometimes wish that I already possess the optimal strategy for my temperament, but the truth is I still have a lot to learn. Thankfully, my mind tells me to return to a place of perspective and gratitude.
The perspective that I often revisit is cliché, but relevant. It’s about the journey, not the destination. If I always got what I wanted, then there would not be anything to learn in the space between moments.
The gratitude I need to remind myself to feel is that I have the time, money, and energy to spend playing around with, and researching the cutting edge of finance.
Let’s Be Real About Loss
My hope for you is that you can relate to what I am writing about, and implement for yourself the strategies that work. Additionally, it is important for you to know that you’re not alone, not in your gains, and not in your losses. Watching your whole portfolio go red for months on end can be crushing, but this is not something that you’re experiencing in isolation.
There is a tendency to boast when you’re making money, and be silent when you’re losing. I think it is important to talk about being in the red, and recognize it as a fact of life, instead of constantly shying away from the reality of the situation. My aim is to not shy away from mistakes, and be the one that talks about them as openly as others talk about their success. When I’ve shared about what I’ve perceived to be my mistakes in the past, others helped show me the lessons that were right before my eyes. I hope to do the same for you, in preparation for the next bull run.
Losses are transient; Lessons are permanent.
Regards,
Keegan
Resources
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