Being a long-term investor does not mean being forgiving of unrealized losses. Lengthening losses in the hope of a short recovery is the quickest and most common way to lose money in this space.. That is not widely disclosed, because stakeholders like exchanges, funds, and crypto companies do not want to lose customers. Therefore, the strategy is to promote bullish enthusiasm at all times. You never ask a barber if you need a haircut. Never ask the baker what to have for dinner. You never ask your exchange if it’s a good time to invest.
Unrealized losses are also losses. On the one hand, they remind us that we buy very expensive. On the other hand, recovery takes time. And that waiting time is usually a wasted opportunity. Because there are always other assets or businesses with better performance during the same period. In other words, don’t buy lightly. The delivery point is very important. And you can not fall into the mistake of thinking that every entry point is good in the case of Bitcoin. The baker will always want to sell you his bread. eye!
What is your priority? The ideology? A political revolution? The libertarian utopia? Many followers on Twitter? Or the growth of your portfolio? The non-idiosyncratic investor is guided by purely financial goals. Therefore, you must buy low and sell high to make a profit. Of course you can operate in different time frames. We can be talking about 3 years, 10 years, 20 years or more. However, whatever the preference span, the principle is the same. You have to be very careful with the entry point and the exit point. And keep in mind the idea of lengthening profits and minimizing losses.
We finance our lifestyle with money. Unfortunately the paper is not eaten, nor the codes are eaten. So, sooner or later, you have to spend. Rather, we invest to see the cheese on the toast one day. We invest to make money. And that is achieved by lengthening profits and minimizing losses.
This vision is very different from the one proposed by many in the crypto space. What is the vision proposed by many in this space? Always buy. Buy at any price. And never sell. I must confess that, personally, something here does not add up to me. We forget that the investor is a flesh and blood person living a real life. That person has aspirations, needs and problems. Suddenly, that person has a family. Suddenly he wants to retire early. Suddenly, he wants to travel, buy a house or treat himself. Unexpected problems may also arise. That is, in life you spend money. It’s virtually impossible to maintain that buy, buy, never sell.
Let’s think about a business. That business surely has assets and income. A long-term investor can buy shares in that business. If the market price of the business is below the valuation of its assets and its income, it could be said that it is a great investment opportunity. Of course, after the acquisition, for the long-term investor, the market price is largely irrelevant, because it was bought with the intention of recovering the investment with the income of the business over time. In fact, if the market price of the business continues to fall, this can serve as an incentive to buy more shares. In this case, you can talk about value and price with two different things.
Bitcoin is not a business. Bitcoin is a code in a computer network. A code is an abstraction. That is, series of numbers and letters in a database. There is no intrinsic value. There is no underlying value. There are no sales or income. Bitcoin is a code used as an exchange fee. Its value is monetary. And its price is defined by supply and demand. Its value is its price. Of course, investors buy assuming that their demand will increase in the future. In this sense, Bitcoin is a speculative asset. It is not a productive asset. That is, Bitcoin is a kind of coupon that can be exchanged for dollars. If we buy Bitcoin today at X and sell in 5 years at 10X, it is thanks to future buyers who will be willing to buy Bitcoin at 10X. Then, it is invested today hoping that future demand will increase its appreciation.
Suppose we are one of those people who like to eat three times a day and sleep indoors. We have income and expenses. By luck, skill, or both, we have managed to make our income greater than our expenses. In other words, we have capital to invest. The idea is that this invested capital provides us with additional income for reinvestment and to enrich our lifestyle.
What are our options? Dollars. Initially, we can accumulate dollars and earn interest. This is a very modest but stable solution. We can, for example, buy Treasury bonds. Suppose we manage to get 3% a year here. Performance is very low. But the investment is safe.
Now. The S&P 500. Here there is more risk, but there is more return. In its good years, the S&P 500 has averaged a 10-15% return. Of course, during the bad years the falls have been 30%-50%.
Now. There are many other options. But here I am going to limit myself to the dollar, the S&P 500 and Bitcoin. Bitcoin. The risk is much higher. Of course, the gains can be much higher than the aforementioned alternatives. Bitcoin in a good year can multiply several times. But in a bad year it can drop by 70%-90%.
The most sensible thing is to stretch out the profits during the good years and minimize the losses during the bad years. How will that be achieved? With a wonder called stop loss. During a good year, the price will be above our purchase price. With a stop loss, We guarantee our profit. For example, a minimum of 20%. But we let the price continue to rise. And we are raising our stop loss to extend our profit.
During a bad year, the price falls. Our stop loss is activated and our profits are already assured. Now, in case of buying expensive and recording losses, the stop loss reduces the loss to a preset amount. It is lost, but it will be a tolerable amount. With that cash, we gain liquidity and stability. What gives us strength to buy at better prices at the right time. What is the right time? At the end of a bad streak and at the beginning of a good one.
Always looking to buy at the best price. Then, the profit and risk are calculated before entering. And there we go adjusting our stop loss. For example, we buy $100. We start asking for profit from 20%. And we are willing to tolerate a 10% risk/loss. That implies a risk/reward rate of 1:2. Our risk is fixed. But our profit, despite having a minimum, does not have a maximum. We stretch profits.
Dear reader, this is a very different strategy than buy, buy, never sell. And very different from that unrealized losses are fine, because you are a long-term investor. I invite you to reflect more on this topic.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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