I don’t know whether it’s something to be embarrassed by or proud of, but one of my main memories of summer 2017 was investing in Bitcoin and Ethereum. I was working a labor job and wanted another way to increase my income so I decided to start investing. I had had an interest in the financial markets for years, but never took the plunge of buying an asset and having skin in the game. Instead I would use worthless stock market simulators with fake money.
This summer wasn’t the first time I had heard of Bitcoin, I had a couple of my friends who mined it back in 2013 and 2014, after that I lost touch with them and didn’t hear much about it until spring of 2017. It was probably on Reddit or Hacker News that I saw a post about Bitcoin and decided to check the price. My mind was blown at the parabolic chart.
Yes, the parabolic Bitcoin chart was when the price was starting to increase to $2,000 per Bitcoin! I was reading one of Nassim Nicholas Taleb’s books where he shared the idea of a barbell investing strategy, where you have 90% of your investments in an extremely safe asset (for me it was cash, others use extremely short term treasuries), and 10% of your investments in a very risky asset. I used this barbell strategy as a heuristic and a mental model more than an investment formula. E.g. I let me profits run instead of re-balancing my portfolio.
I would invest 10-20% of each paycheck into Bitcoin (and Ethereum) and hope the price continued to increase. Hope is the imperative word here. The most “blue chip” of cryptocurrency exchanges at the time was Coinbase so I chose to buy through them. I sent them a picture of a government photo ID and started buying Bitcoin and Ethereum. I learned you weren’t supposed to store crypto on an exchange because they could be hacked so I bought a “hard wallet”, the Ledger Nano S. I still have it and managed to pull it out of storage for a photo shoot.
At the time I was buying Coinbase had limits of how much you could buy every week or two. Once you reached your limit they wouldn’t let you buy anymore until a few days or a week later. I believe the initial amount you could buy started at $100 or $200. I was not impressed with this, but I followed their rules and bought consistently with each paycheck from May to July 2017.
I continued to read about Bitcoin, Ethereum, and Cryptocurrencies in general. I must have watched all on Andreas Antonopolous’ videos about Bitcoin. I was becoming a believer in what Bitcoin could do for the unbanked and people that did not want to participate in the fiat money system. Fortunately as a millennial without a strong grasp of economic and financial history I was not aware that gold was a much better safe haven and antifragile asset than any crypto. Fortunately my ignorance allowed me to make great crypto profits.
Near the end of July 2017 I made my last crypto purchases and decided to save as much as I could from my paychecks as cash. I believed I had enough crypto and if the price continued to rise it would be fantastic but I would not longer have a “barbell investment strategy” I would just have a hard wallet full of a speculative investment (I was well aware it was speculative, no matter what I believed the potential could be).
I sat pretty through the rest of the summer and the autumn as bitcoin fever broke out among the masses. The price broke out heavily to the upside and everyone was talking about it. Relatively early investors were posting pictures of their lambos on Reddit and people were talking about bitcoin everywhere. My close friends were mentioning people we knew who had made a bunch of money off bitcoin or “the coins”. The price of Bitcoin was starting to go vertical so I sold, I knew it couldn’t continue forever and I needed money now more than more glorious returns.
How did I do?
I sold all my Ethereum and Bitcoin from December 5th to 10th, 2017. I had bought between a 50/50 and 66/34 share of Ethereum and Bitcoin, respectively.
I made good profits, somewhere between 300% to 1,000% of my initial crypto investments. Let’s say 500% returns, all while maintaining a “barbell strategy” that ended up developing incredible skew because I let my profits run.
It was a lot of luck with where I sold my Bitcoin, only a few days from the all time high. If I had decided to wait and sell my Ethereum in January 2018 I could have made another 300% return on that investment. Hindsight is 20/20 and no one goes broke taking profits. I still made very solid gains from a speculative investment and was not left as a bagHODLer.
The hardest part about deciding when to sell an investment is dealing with the endowment effect, a common cognitive bias in investing.
The endowment effect refers to an emotional bias that causes individuals to value an owned object higher, often irrationally, than its market value. – Investopedia
This is especially difficult when the investment is having a face peeling rally like Bitcoin in December 2017. When this happens it is important to remember Warren Buffet’s great quote – “Fearful when others are greedy and greedy when others are fearful.” If you want to play with the speculators you need to be ready to get burnt. When you live by the sword you might die by the sword. Speculative manias are not new, they were happening hundreds of years ago with tulips in Holland.
You just need to know yourself and whether you have the risk tolerance to speculate like this.
If you want to run with the big dogs, you’ve got to learn to pee in the tall grass.
And no, I am not worried about missing out on another rally in Bitcoin or another cryptocurrency. Bitcoin was a truly unique speculative bubble that had a powerful hold on the collective consciousness for a very brief point in time. Now it’s simply a cult favorite, with the same quasi-religious followers. Instead of looking to the past you should look to the future if you want to make massive returns speculating, I believe Bitcoin’s psychological (and therefore speculative power) is going to continue to dwindle.
My good old friend Google Trends agrees with me as well.