Diamond Hands
Wednesday, May 19th 2021, the Crypto market lost over -$800 Billion from its total market capitalisation (from peak to trough).
This sharp downside movement caused many portfolio devaluations but the sharper cut was taken by leveraged traders as over $5 Billion worth of longs were completely liquidated and $11.4 Billion worth of futures positions closed overall ($5B in liquidations and the remainder in closures – either stop losses or manual closures). This is why we advocate against new crypto market entrants using leverage.
Volume-wise, today has been the highest in futures volume by far across exchanges which actually caused multiple temporary outages.
The downside move has been caused by market participants sharing an overall sense of doubt and uncertainty and Bitcoin breaking $40,000. For the last few days, there was a ~$20 Million buy wall on Coinbase’s BTC/USD pair at $40,000 which was pulled from the orderbooks earlier in the day and pushed prices to fall under $40,000 which (amongst other more technical factors) led to panic selling and pushed Bitcoin’s price as low as $30,000.
Does this mean it’s all over for crypto?
MOST CERTAINLY NOT
This asset class (i.e. crypto) is one of the most volatile in the world, simply because of how novel it is. High volatility means crypto sees days where prices skyrocket by very large percentages but it is not a one-way street. High volatility also implies sharp market corrections – it really is a double-edged sword.
The question is: “How does one power through difficult times and not only survive but thrive?”
TLDR
- Have a vision for crypto
- Research fundamentally sound assets
- Resilient mindset
Note: These parts are covered in a podcast we’ve recently done, take a listen by clicking here.
If you’re new to crypto, you’ve probably been pulled in by some shitcoins that have pumped by large multiples over short periods of time, a few examples are: DOGE, SHIB and AKITA. This is the wrong way to enter any new market because at the end of the day they are just shitcoins with non-existent intrinsic value. When the tide shifts, these just crash in price by over -90% because their actual fair value is 0.
Vision for Crypto
The correct way to enter the crypto market is to look at all of the innovation taking place in this space, taking notes and developing a vision for crypto. Here’s what our vision is for example:
- Bitcoin: The new & efficient Store of Value (SoV) chosen for its simplicity, scarcity and network effect.
- Ethereum: The World’s Financial Internet & Global Settlement Layer. Ethereum as a network allows developers to build different decentralised applications (dApps) on top of it – the most popular ones are Decentralised Finance (DeFi) protocols. As a global settlement layer, Ether – the native asset – is highly valuable and even more so once a deflationary element is added to its supply (i.e. fee burning with EIP1559).
- Decentralised Finance: Up until DeFi protocols were created, it was quasi-impossible to find tokens backed by real cash flow. By generating revenue and sharing it amongst token holders, these protocols have real intrinsic value. Naval Ravikant, a prominent investor had expressed an opinion about today’s DeFi investors which we agree with ????
By developing a 5-10 year vision, you can easily move away from the intraday fluctuations and short time horizons. This helps you focus on the bigger picture of where this market is headed and think rationally in unique times such as today. Finding these assets takes a lot of hard work and can only be done through extensive research and analysis. However, these take endless hours because of how fast-paced innovation is in crypto, which is why we offer our Cryptonary Pro service to help deliver the research and analysis by our dedicated team at a very affordable price. For reference, in traditional markets such as equities, simple monthly newsletters can cost north of $400/$500 per month.
Resilient Mind
The toughest battle is an inner one that plays on the psychological field. Make no mistake, undergoing drawdowns is never fun nor enjoyable no matter how much experience an investor may have, but that pain is the price we pay in exchange for the opportunity. Acknowledging and managing one’s expectations about this market’s volatility is a key to ultimately build the Diamond Hands ???? ???? one needs to weather the storms.
An investor we hold in high regard is Konstantin Lomachuk whose known for having extremely strong hands. Lomachuk has bought into both the ETH ICO and SOL pre-sale, amongst others, both of which are up thousands of multiples and he’s still holding on because he has a specific vision for crypto.
Another facet to look at is the fact that people often measure their performance against a buy & hold portfolio in crypto, which has proven to be difficult to beat over long periods of time. How could one outperform ETH on an entry of $0.30? (ICO price) – it is tough to handle the ups & the downs of the crypto market but if it was easy, then everyone would be rich.
When it is all said and done and this market attains a $100 Trillion market capitalisation in 2030, everyone will say:
In retrospect, it was inevitable.
But were their hands strong enough to sustain drawdowns?
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