What this crypto crash has taught me

I still consider myself new to this whole crypto thing.  I'm a couple days away from hitting my six month anniversary in crypto which started by fruitless mining crypto on an old laptop and has taken me on a winding path I never envisioned.

Think back six months, crypto was at its peak and everything was green candles shooting every skyward.  And then I entered the market, perhaps it is all my fault after all and for that I am truly sorry.

Life teaches you lessons along the way.  The question is can you adapt and really learn from then.  Some lessons are harder to absorb than others but when you really get smacked in the face, like this past week, it is time to really stop and reflect as to what has happened and how you will change your approach moving forward.

Here are a few lessons I've learned last week after the crypto market tanked:

1) Stable isn't stable after all - I thought that stablecoins were the safe havens of crypto. It is where I parked my capital while trying to figure out exactly where to invest.  A dollar is a dollar isn't it?  Well not in the crypto world and especially when it comes to algos (algorithmic stablecoins).  With UST losing its peg and then falling to roughly a quarter of its value I learned a very valuable lesson.  Fortunately, this lesson didn't cost me anything unlike most lessons I learn.

2) Big coins fall hard but other coins fall much harder - hello Luna, the main native token of the Terra Network.  You know this story and how it ties into lesson number one.  But other altcoins also fell, much more than Bitcoin (BTC) and Ethereum (ETH).  Pick a coin (or token), any coin, and you are likely to see a much more significant drop than the two leading cryptos. 

3) Paperhands are aplenty in crypto - Reddit, Twitter, Telegram and Discord are full of former crypto enthusiast proclaiming "I'm out!"  I've never seen this sort of reaction in the stock market, specifically to this level.  I've always known short-term investing is a fools game but I'm truly shocked at how many novice investors are involved in crypto.  A lot of limited financial literacy exists in the space which only contributes to the volatility.

4) Crypto is a contact sport - you are going to get hurt. If you don't think you are going to get some bruises, think again. Actually it isn't so much as I didn't think you could get hurt, it is the level of the pain incurred that surprised me. I follow some folks in the crypto world I view as very smart and reasonable people and  many of them took a financial beating this week.

5) Only invest what you can afford to, and perhaps expect to lose - to this point I've really only put risk capital into crypto.  I'm talking less than a half of one percent of my net worth.  That said, I get so excited about crypto projects and am tempted to put much more into it but this market pull back is a great lesson to be careful just how much exposure you have in crypto.  

Here are some adjustments I will make going forward:

1) Invest only in the bluest of blue chip cryptos - the only two major holdings I have in terms of coins are Bitcoin and Ethereum.  I do hold Tether so that I can have capital ready for projects of interest but I'm rethinking that strategy now.  Shake ups like we have had can cause irrevocable damage to smaller coins and I have to question the true long-term viability of many coins.  

2) DeFi is where I will focus - I really enjoy DeFi projects.  Yield farming has become perhaps my favorite part of the crypto market and the earnings there continue even when the market is falling.  When I look back at what I've invested into even blue chip crypto compared to yield farms, my losses are much lower in the farms thanks to the earnings they generate.

The past week has only enforced the fact that stocks and crypto share a high correlation.  Since I am heavily invested in stocks, crypto offers little diversification almost to the point in which it is worthless.  Moving forward I will invest little if anything into even blue chip cryptos moving forward.

The shift now is to DeFi and building up passive income.  I have never been a fan of bonds in the investing world but understand their place in one's portfolio.  Yield farming and the various offshoots are the areas I will concentrate on moving forward as a way to compliment my existing portfolio.  When my assets fall in value, I will have income to draw upon if needed.  Ideally this won't be the case and I can use passive income earnings to save up and really have fun traveling the world in my early retirement.  Given this is risk capital, I view the earnings as play money and play is what I hope to do.

If I've learned anything from this crash it is that finances are often a temporary thing that can change on a dime and without much notice.  I do not emotionally tie myself to my finances other than feeling free due to having achieved financial independence reasonably early in life.  That independence affords me one of the most precious assets of all - time.

What has this crash taught you?