Common Misconceptions of Bitcoin Investing

The current state of the cryptocurrency market is troubling for many investors, especially for those who decided to buy throughout December of 2017. These investors have experienced an emotional landslide. As cliche as it is, “Be fearful when others are greedy, and greedy when others are fearful.” (Warren Buffett). Given this logic, the investing community should actually celebrate the current low cost of Bitcoin. In many cases, some of the most prominent altcoins can be interpreted as 80% off their original price.

Amateur investors in the cryptocurrency sphere are only looking at short-term time horizons. Six months to a year maximum. Developing a longterm mindset is an essential technique. Historically, Bitcoin and the majority of altcoins exhibit the most-prominent growth within very small time increments. In some cases, patience and persistence may be overlooked.

Those new to the cryptocurrency sphere often make the mistake of equating cryptocurrencies to stocks. There are correlations which are prevalent between the stock market and crypto sphere. However, there are still many misconceptions. In many instances, investors are not concerned with what the coin is or what it does. As a result, the analytical measurements become the only data taken seriously.

Please take a moment to suspend your disbelief–approach cryptocurrencies and blockchain as a collective technology, not as you would independent shares of stock. The success of all cryptocurrencies is dependent on the success of blockchain technology as a collective entity. Overall, the cryptocurrency sector will become successful in the same way many technologies have become adopted throughout history. Observe the adoption patterns of some of the most influential technologies throughout the course of the 20th century. The exponential trend continues to follow humanity into the 21st century.

Bitcoin adoption trends have the potential to exhibit similar adoption patterns of Facebook, Twitter, and YouTube.Bitcoin (orange) vs. all the altcoins (green) since their launch. Don’t bet against Bitcoin!

The additional graphic above is proof of why many traditional investing strategies are not applicable to cryptocurrency investing. For instance, the concept of an index altcoin fund is statistically asinine. ‘For stocks, 99% of index funds, namely a fund that buys the entire market passively, outperforms actively managed funds.’ This is not true for cryptocurrencies. Hypothetically, if an investor diversified into an index altcoin fund, their fund would have exhibited significantly less growth than Bitcoin. The graph above is one of the most compelling reasons to HODL Bitcoin for the longterm and trade altcoins for short-term gains.

There are, however, particular altcoins which possess unique values. For instance, Litecoin transactions are four times faster than Bitcoin retail transactions. It is highly probable that altcoins will last and have particular advantages, retail or otherwise.

Historically, every time the price of Bitcoin has risen prominently, the price of most altcoins follow. This pattern has occurred three times: Once in May & June of 2017, Sept. 2017, and December-January 2018. This pattern is most likely a result of forerunner altcoin investors removing their money from altcoins, and inserting that money into BTC, as the price of BTC increases. The same is true for the decline of BTC. The last three times BTC has increased drastically, a consolidation period occurs shortly after, thus forcing the majority of altcoins to rise. Therefore, once the price of BTC starts to stagnate, the price of altcoins increases. This is presumably a result of BTC investors removing their Bitcoin profits and investing them into altcoins. This pattern is fairly predictable. After the December-January pattern, one of the most-prominent altcoins that increased in value was Nano, (formerly RaiBlocks).

Although many traditional investing strategies are inapplicable to cryptocurrencies, many fundamenalt investing strategies will always be relevant. The graphic below is a representation of the most effective days to dollar-cost-average Bitcoin. The best day to dollar-cost-average Bitcoin is Friday. Statistically, the second best day is Wednesday. (These are the days which Bitcoin is historically the cheapest).

Overall, the majority of cryptocurrency investors are playing the short game, and are driven by hype and naive overconfidence. Perhaps this is what has caused the rise of Lamborghini purchases in 2018. These considerations are important questions for a big-picture understanding. Many important questions have yet to be answered: What role will cryptocurrency and blockchain technology have in the next 10 to 15 years? And which parties are going to possess the most power? I suppose the world will develop some clearer conclusions by 2020.

Disclaimer: I am not a financial advisor. This is not financial advice. Please do your research independently and make object decisions. This article is intended to educate readers on historical Bitcoin and altcoin value patterns. Personality, I have positions in Bitcoin and various altcoins.