They say the peak of a market has been reached when your taxi driver is giving you stock tips. I distinctly remember taking an Uber to a meeting 4 years ago, and my driver was telling me how he was mining Bitcoin. Am I the only that felt as though everyone was mining Bitcoin at that time? It's like it was every tech-nerds pastime. Back then Bitcoin was trading at around US$6,500. After peaking at around US$63,000, Bitcoin has been sliding down a very slippery slope. Currently trading at around US$34,000.
I bought some Bitcoin a few months back, in fact, I think I actually pin pointed the absolute peak, right to the decimal place. What can I say, I'm a genius - LOL. Sure, I had FOMO - I advise people about this stuff, I'm fully aware of my biases, yet I am a human being. It wasn't a huge amount. If I lost it all, it wouldn't change my life. If it doubled or tripled, eh, it'd be nice, but it wouldn't change my life either. Then why did I buy it? FOMO - I admit it. Bitcoin was going to US$100,000, no? Ha! I was really curious about the process of buying, storing, and monitoring. I was getting a lot of questions at the time, so I bit the bullet so to speak, and took one for the team.
I found myself logging in and checking the balance way too frequently. The emotional rollercoaster of making thousands of dollars one moment to only be losing thousands hours later. Reminds me of my conversation with high stakes world poker champion Wayne Yap on Masters in Investing. It's not like the stock market for me, I believe the stock market is a proven asset class. I can invest in a whole bunch of stuff and ride the waves. Crypto was a new brand new ocean for me, waves I've never ridden before - super volatile. I'm over it now, I never login to check my balance, and seldom do I check the price of Bitcoin.
"Altogether too often, people substitute opinions for facts and emotions for analysis." - Andrew S. Grove
My investment is worth half of what it was when I first invested. Am I selling? No. Am I buying? I probably should, and will regret not buying when it jumps in price again, but no. I don't know enough about it just yet, and quite frankly I don't know anyone who does.
Bitcoin is one of only a few assets that could double in price as quickly as it halves. So I'm okay holding onto the my allocation. But for many investors, and for many investments, this is not so true. In fact, I don't think many investors realise how much an investment needs to rise after falling 25%, 50%, 75%, etc. Most people think a 50% loss requires a 50% gain to breakeven. Far from it. It requires a 100% gain to just breakeven.
I crunched the numbers and have summarised them here. Small losses are fine, they're chewed up in decimal places. It's not until your investment losses 10% and your gain required to breakeven is 11%. A 20% loss requires a 25% gain to breakeven, 30% loss requires a 43% gain to breakeven, and a 60% loss requires a 150% gain to breakeven and so on. The larger the loss, the greater the gains required to breakeven - an 80% loss requires a 400% gain to breakeven, crazy!
Next time you're looking to invest, understand the facts, the possibilities, be clear on the objective and know where the exit doors are. Having clarity around what you're doing and why you're doing something is totally underrated. In fact, I'd argue that it's imperative. Keep this scorecard handy.
I'd rather be an investor of Bitcoin and never need it, than not be an investor and need it.