Investing in cryptocurrencies (FUD, FOMO, HOLDING)
In this article I will consider what a holding is, how to make decisions regarding cryptocurrency, what is FOMO / FUD. I will tell you about the bad investment experience of one of our readers.
Basic principles of investing in crypto
The whole investment process will be based on some basic principles. Without which of them, it will be very difficult to go from the beginning to the final investment goal. These are the prerequisites:
- Cryptocurrencies will rise in price for several more years, at least 5-10 years. No, this is not a guarantee, but I, an investor, adhere to this position. I believe there is a long and successful future for cryptocurrency. In the absence of such a position, there is no point in investing;
- Our investment horizon is at least 5 years, or better 10. The cryptosphere has already established itself as an extremely volatile industry, and the wind of crypto-changes does not always blow in the same direction. This means that you need to be prepared for market drawdowns, which can be leveled only over a long distance;
- I stick to the “hodling” strategy. It means “buy and hold”. I don’t trade, sell or buy coins often. Although I keep track of my portfolio and its composition. From time to time, critically reviewing the portfolio and its members.
So, we have decided that we will stick to the hodling strategy. This means buying coins for a long time, counting on the overall growth of the crypt. At the same time, there is no point in blindly believing in the once made choice in relation to this or that token. On the contrary, you need to critically review the tokens in the portfolio and monitor their dynamics.
Here are some examples. In 2017 and 2018, along with bitcoin, the names of Bitcoin Cash (BCH) and XRP (Ripple) thundered. Then these cryptocurrencies were constant participants in the lists “What cryptocurrency to invest in now” and showed good dynamics. But what do we see nowadays? The endless forks of BCH and the split in the community have seriously tarnished the coin’s reputation. And now, against the background of other, more “honest” and understandable tokens, BCH is lost and does not attract the interest of investors.
As for Ripple, then, in 2017-2018, it was also at the forefront of the crypto industry and was the constant companion of Bitcoin and Ether. Now, being in the center of the confrontation with the SEC, the token cannot offer investors a more or less intelligible future. Therefore, the token itself does not grow very dynamically.
Do you know a Primecoin cryptocurrency? It was also once recommended to be purchased in a portfolio. The token is traded now, however. For three and a half years it has shown a positive trend by as much as 50% since the fall of 2017. Obviously, this is not a coin worth keeping in a portfolio.
The above tokens are examples of the fact that a choice once made in favor of one or another coin may turn out to be wrong. And it is important to abandon such portfolio members in favor of others.
How to make decisions about cryptocurrencies
Since the cryptocurrency industry is very dynamic, the investor is faced with a flood of news every day. It is easy to get lost in this information noise and start making hasty and wrong decisions. How can you avoid this? Of course, it is impossible not to follow the news at all and be in an information vacuum. You just need to remember the first postulate (the crypt is growing in the long term) and track the general trends in relation to a particular cryptocurrency in your portfolio. It makes sense to view the news and monitor the appearance of negativity in relation to a specific token, as well as monitor the general news background throughout the cryptosphere.
In the general bull market, all the “correct” tokens often are growing. If negative news comes out for some token and they arrive for a long time (several weeks or months), it makes sense to abandon the coin and sell it.
If the token moves in unison with the entire crypto market (falls along with everyone else), it is reasonable to conclude that there is a general “crypto winter”. Or, at least, it can be called a “crypto vacation”, when the whole crypt paused, gaining strength for a future breakthrough. What to do in this case? Actually, nothing. You just need to wait out the drawdown, regularly collecting tokens in accordance with the DCA (Dollar-CostAveraging) strategy and not succumbing to such a phenomenon as FUD. I will talk about the DCA strategy a little later in this article, but for now we will analyze two well-known factors in the psychology of investing – FUD and FOMO.
“Sweet couple” – FUD and FOMO meaning
These two concepts follow each other in the investment world. First, let’s define the concepts.
- FOMO (Fear of Missing Out) is a psychological state when an investor hesitates to make an investment for a long time, observing how everything around grows and shows high returns. He reads the news, looks at the coins every day and sees how they are getting more expensive, and in the end he decides to invest. But often he does this already at the moment when the crypt has grown strongly and a drawdown is expected.
- FUD (Fear, Uncertainty, Doubt) is such a state of an investor when, against the background of negative news on cryptocurrencies (or, at least, lack of positive), doubts begin to plague him whether he made the right choice, whether his portfolio is threatened with a severe drawdown and not Is it time to sell your tokens.
What’s wrong with FOMO? In this state, a person often invests a large amount of money in a crypto when it has grown a lot. A person reads the news about the growth of a single coin or the entire crypt, being nervous and wanting to “hop on the departing train”, invests a large sum in the crypt, and it … soon begins to correct itself. As a result, the investor gets a drawdown and finds himself in the FUD state.
FUD, on the other hand, makes the investor nervous, waiting for the growth of his investments, which still does not happen. He questioned his own decisions and ended up selling his coins.
In general, there is even such a FOMO-FUD cycle: in the beginning, the investor late “jumps on the last train”, buying coins at a high price. Then it gets a drawdown, falling into FUD … Then – another too long waiting instead of active and regular actions, buying at a high price, again FUD and again disappointment.
One of the readers of my blog shared her experience of investing in stocks, in which FOMO and FUD can be traced. Here is her story.
So, I didn’t think about myself as a gambling person before. I always thought that I was a sane, calculating and rather rational person. And it is because of this that I decided to enter the world of investment. The pension is already 20 years later, there is no business, there are no sources of income other than work, and I do not want to live in poverty at the end of years. I thought that investing is a good savings option. At first, I wanted to invest a significant part in minimally risky bonds and ETFs. But then I started following the charts of some companies: Moderna, Tesla, Virgin Galactic.
With each of them, I did not work out. I bought at the peak and sold at the bottom. Everything seemed to me: “Well, it is growing, oh, I should have bought it yesterday!” And then, when the stock fell, it was very difficult for me to come to terms with the minus. I kept waiting for her to go up again. This was the case, for example, with Virgin Galactic: the stock began a sharp decline and fell lower and lower for a long time. I studied the news. Nothing boded fast growth, at that time there was only negative news, and I decided to sell in order to save at least something. Less than 2 weeks later, the stock went up. And I was left with a big minus.
This was my pay for the experience. Now I know how to do it right:
- Diversify your portfolio;
- Adhere to the DCA strategy;
- Play for a long time, occasionally reviewing your portfolio. There is no sense in “twitching” at short intervals.
DCA strategy to avoid unrest
Is there a cure for FOMO and FUD? Yes, and it’s called the “DCA Strategy” (Dollar-Cost Averaging). Its essence is the regular purchase of cryptocurrency for some part of your income (for example, 10%), regardless of the state of the market. Moreover, the term “regularity” can be understood as a weekly purchase of a crypt for a certain amount, as well as a monthly one. Most likely, you should not do such actions on a daily basis, since this option is too expensive.
DCA has several advantages:
- Firstly, it makes it possible not to worry about decisions like “did I do the right thing that I bought the crypt today”, “did I need to buy this token today”, etc. You just regularly buy according to your plan – clearly, everyday, disciplined.
- You beat FOMO on the vine as you are always in the game. You do not miss out on opportunities, but make investments on a regular basis.
- You are also not subject to FUD as the DCA strategy is to invest even when the entire market is down. Everything is “red”, everything falls. What to do? Buy. Moreover, at the same time you buy cheaper, which in the future, when everything grows again, will give you a good income.
The DCA strategy allows you to split your purchases over a large price range, that is, to average the purchase price. The price will not be the minimum, and you will buy something at the local maximum one way or another. However, it will not be completely maximum. Given the constant growth of crypto, profit will be all the same.
This sounds good in theory, but how will it be in practice? We will test with you together. I talk about all purchases of cryptocurrency on my telegram channel.
An important note about investing
Here I have already mentioned the word “everyday” in relation to investing. Indeed, the process of investing money in a crypt should be regular, habitual and mundane. It is necessary to move away from the emotional perception of crypto, although sometimes it can be difficult to do this. It seems that it makes sense to develop a belief in yourself that everything will be fine if you regularly perform the necessary actions. And let it be such a not too emotional, then warm and soul-warming emotion that will allow you to go through the entire long-term path of investment and achieve your goal.
I repeatedly in my articles talk about the extremely high volatility of the crypto market. In such conditions, it is almost impossible to determine the bottom or the peak of prices. Therefore, the DCA strategy should provide a sufficiently high return, subject to long-term, regular work and a disciplined approach to investing.
Disclaimer: This article is not investment advice. Assess the risks yourself before making any investment decisions.