Chapter 2: The Key to Successful Investing

If it sounds too good to be true, it probably is.

—Richard Carlson

When it comes to investing and making money via cryptocurrencies, there are various ways to be successful. But at the same time, the chance to fail is at least ten times higher. First of all, you need to find what suits you best. The following chapters of this book contain my views on the most common way to earn money in crypto. But before we start, there is one basic rule you need to keep in mind:

Always try to earn more Bitcoin, not fiat.

This is one of the most important rules that you need to keep in mind during your journey of investing into virtual currencies. Let me explain to you why. We will start with a simple example. Imagine that you own one Bitcoin that is worth $10,000 at the time. Now you buy 10,000 coins with your Bitcoin, resulting in $1 per coin at the time of investing. After three months, one Bitcoin is now worth $20,000. The coins you bought are now worth $1.5 per coin, or $15.000 in total. Now ask yourself whether you’ve actually earned any money with that trade. The short answer is no. If you traded your 10,000 coins for Bitcoin, you would receive only 0.75 BTC. Without trading, you would still earn your whole Bitcoin that is now worth the $20,000.

This all may seem obvious, but it’s something done wrong countless times. The solution is rather simple. Always look at the coin-to-bitcoin ratio (for example, XMR/BTC) and not the USD valuation for the asset. Of course, you can trade upon certain USD-based prices as well, but I would recommend keeping an eye on the BTC ratio as well. As the majority of coins or tokens are still not traded against fiat directly, you should always aim for a BTC gain upon closing your trade. It should be self-evident that this rule applies for assets that are traded solely against ETH as well. Since ETH is traded mainly against BTC, it’s good to keep track of the ETH/BTC nomination on the regular basis too. As long as Bitcoin is the currency reigning the whole market, which it will most probably always be, the overall aim should always be to accumulate more Bitcoin.

Before we get very much into detail in the following chapters, there is a second lesson I want you to keep in mind:

In crypto, perspective is everything.

Take a look at the charts below:

If you’ve already made your way into the world of cryptocurrencies and Bitcoin, you will directly recognize the chart above showing the course of the Bitcoin price starting from as early as 2009. You will notice the peak at around $20,000 and the recent drop to the lowest point of $6,000$ as well. That is quite a crash isn’t it? Let us put all of this into perspective by looking at the following charts as well:

Bitcoin chart from June 2017 to June 2018

Bitcoin chart from June 2016 to June 2017

Bitcoin chart from June 2015 to June 2016

Bitcoin chart from June 2014 to June 2015

Bitcoin chart from June 2013 to June 2014

Bitcoin chart from June 2012 to June 2013

Bitcoin chart from June 2011 to June 2012

Bitcoin chart from June 2010 to June 2011

Those are yearly charts of the Bitcoin price going back to the year 2010. There are some things I wanted to show you with those charts. But first, here is a little exercise: I want you to try to fit in every one of the charts into the very first one (Years 2011–2018). After doing this, you will have learned a crucial lesson. In comparison to the pump in late 2017–early 2018, every other price increase over the years seems ridiculously small. But looking at the price one year at a time, you will notice that some years had huge price volatility.

For example, take another look at the charts for years 2011–2014. You will see some major corrections that would have made huge waves if the media interest had been the same back then, with headlines like “Bitcoin is dead” or “The Bitcoin bubble is bursting.” But how wrong would that have been? I know it is always easier to judge the past, and I don’t want to sound as if I would have been able to forecast the price action in any way. No one can predict the future, but those charts should help you to get an understanding of the bigger picture.

Another thing to learn from these charts is that the possibility of a yearlong (or even longer) downtrend does exist. Sure, the circumstances have changed in regard to interest or popularity, but that doesn’t mean anything in general. No one knows whether we will see a bear market of longer than a year again. But I can definitely promise you that some major corrections will happen one day. The overall market sentiment is a major factor in trading cryptocurrencies because the market is still volatile and speculative. That’s why managing risk and understanding the market are both very important.

Another take-home lesson from the graphs above is that you shouldn’t be too focused on the dollar value. Naturally, that is a major factor, since most people are focused on earning some money rather than the tech itself. But if you see only the lost value in dollars, you will most likely never be able to actually understand the market. Future corrections will most likely be valued %-wise, and if Bitcoin ever reaches $100,000, I am more than confident to say that we will still see daily 10 percent price swings. If you are still going to be focused only on the dollar amount, you will surely drive yourself mad to see such large amounts of money lost in only one day. Buying or losing ten Bitcoin at that time, for example, would result in a whopping $100,000 price swing of your portfolio. And that would not even be a huge correction, given the events of the past.

The better you understand the market, technical, and fundamental analysis and the psychology behind it, the more relaxed and patient you will be regarding price actions. Over the course of the following chapters, I will try to teach you all the necessary skills to be successful in crypto. I hope you enjoy it.