Rules for Crypto Investing from Cindicator Financial Analytics Department

It's tough to make predictions, especially about the future. It’s hard to choose the right moment to invest, to find the point without any further drawdown. This year lots of folks did their crypto investments through Stoic near the peak of the market. This peak is obvious, but only in hindsight.

When it comes to investing, it’s important to understand the limitations of our knowledge. While there’s a lot we don’t know, we do have several rules that can help us make reasonable decisions.

1. Investing is for the long run. 

Despite all the short-term risks and volatility, a group of risk-on assets like stocks or crypto has had the highest long-term returns of any investment type. Every time the stock or crypto market has crashed, it has always rebounded later. While it’s almost impossible to perfectly time the market in the short term, in the long term, almost any entry point works out.

Let’s look at what the returns for investing in Bitcoin would be today depending on the date of the investment. On the chart below, the x-axis shows the date of a hypothetical $10k investment. And on the y-axis, we have the value of the initial $10k investment on 16 March 2022. Even those who invested at the worst time, during the absolute peak in January 2018, would still have $22.5k today, up +125%. But most people who invested then have disappointedly faded away from crypto and missed the bull run that came after the crypto winter.

2. Buy low and sell high. 

History has shown that few can predict the peaks and bottoms of the market. The best time is only evident in hindsight, that’s why any day is as good as any other day to invest. But what we can say for sure is that today, after a major correction, is a much better time to invest than during the crypto market’s highs in 2021.
On the chart below, we have the date of a $10k investment in Stoic on the x-axis. And the y-axis shows the value of the original investment on 16 March 2022. For example, a $10k investment made on Apr 1, 2020, would have grown to about $82,000 today (if you invest in BTC on this date, you would have $60,000 today). Investors who entered in June and July 2021, after a significant crypto market correction, are still in profit with up to +10% from their initial investments. Yet most investors were scared to invest at that time, the few who understood the potential upside were buying low.

3. Cut down idiosyncratic risk.  

Few investors can consistently beat the market by choosing the right projects that will outperform the market. Just look at the top-20 crypto assets by market cap from the crypto winter 2017-2018: only five coins are still at the top. The other 15 coins fell out — and fell a long way. The average rank of those 15 is #80 today. The lesson here is to not put all your eggs in one basket — or even five baskets.

To sum up, today is a much better time to invest in crypto than in 2021. True, the market might keep going down for some time. And if you have a long-term investment horizon, you can just average down. The averaging down strategy is when you buy more of the asset when the price falls — this suits the times when there is fear in the markets.

Thank you for reading!