Those who believe they can win by timing the market should consider this: 90% of the gains in cryptos over the last seven years were made in less than 5% of the trading days.
“The lesson from this is one should not try to time the market. It’s time in the market that counts,” says Sean Sanders, CEO of crypto investment platform Revix, which is backed by JSE-listed Sabvest.
Sanders, a chartered financial analyst and former investment manager, says the same rules that apply to the traditional investing market apply even more so to the cryptocurrency market.
Sanders says the following eight rules are the best starting points for any cryptocurrency investor.
- KISS – Keep It Simple, Stupid! We all tend to overthink things in life. We try to make the easy more complex because we think that if it was easy, everyone would be doing it. When it comes to your investing, don’t overthink it. Simple is almost always better in the long run. If you try to make your process too complex you will never stick to it. Or it may work once but never again. “One of my steadfast rules is to create an investing plan ahead of time,” says Sanders. This will allow you to take your inherent emotions out of the equation. An investment plan is much more important that which funds or markets you invest in. Having a process will keep you from trying to predict what the market will do next week, next month or next year.
- Don’t bet the farm. The phenomenal returns generated by some cryptos in the past year are mouth-watering, but the market goes in cycles and the truth is that nobody knows what will happen over the coming months. “Invest only what you are willing to lose. Even if you have a high-risk appetite, start investing with small amounts. Don’t put more than 5-10% of your overall portfolio in cryptos,” says Sanders. He adds: “If you’re thinking about your crypto investments just before bed every night or as you wake up every morning you’re probably over-invested.”
- Diversify. Savvy investors know that it is risky to put all their eggs in one basket. You may be tempted to bet on a single cryptocurrency. The problem is that taking these sorts of single bets are no different to going to the casino and rolling dice – it’s pure gambling. “I really believe diversification within the cryptocurrency space is more important than arguably any other investment market out there,” says Sanders. “It’s a nascent industry and just like the early days of the internet there will be some big success stories and massive failures. Rather bet on the growth of the market as a whole through a product like our Top 10 Bundle which functions like the S&P 500 but for crypto and provides exposure to the 10 largest cryptocurrencies making up 85% of the crypto market.”
- Don’t try time the market. There’s another expression in financial markets: don’t try to catch a falling knife, which is when a trader doubles down on a losing trade in the hope of a reversal in price. “It is unwise to attempt to perfectly time the bottom and far safer to wait for confirmation that the market has bottomed,” says Sanders. “Trading within a movement is far less risky than attempting to buy the bottom and sell the top.”
- Use a trustworthy platform. The crypto space is not regulated in South Africa and new outfits are mushrooming every day. Investors need to be careful when choosing a platform through which to trade. “Invest through an established and trustworthy platform like Revix, which is backed by JSE-listed Sabvest, so that your money does not get stuck if there is a regulatory setback,” says Sanders. He adds: “There’s a handful of highly reputable platforms in South Africa. Make sure you do your homework.”
- Don’t act on tips without verifying. The crypto space suffers from a severe lack of credible information. Many investors are dependent largely on unverified information on social media. Self-styled crypto analysts create WhatsApp groups packed with their accomplices who vouch for their accuracy. These analysts trap gullible investors, first by charging a fee for the tips and then using them for their pump-and-dump operations (that’s when they hype a particular crypto through social media and offload their holdings to unsuspecting investors). “As a rule, you should verify the information before you invest,” says Sanders.
- Focus on blue chips. As in the stock market, the crypto market also has blue chips, mid-caps and penny coins. Don’t get tempted into buying obscure coins just because you can get a lot of them at a low price. Bigger coins are more stable and have more active investment markets. Bitcoin is the apex blue chip of the crypto space and drives the overall market sentiment. Sanders advises focusing on blue chip coins such as those held with in Revix’s Top 10 Bundle, with some of your money in emerging counters. “Widely held coins with large market capitalisation are less likely to be manipulated than coins that are closely held by a few people.”
- Don’t ignore the tax. “Last but not the least, don’t ignore the tax payable on the income from crypto investing. Income in any form from any source is taxable. Cryptos are not considered currency by the South African Revenue Service (Sars) and are treated as capital assets. This means short-term gains will be added to income and taxed at normal rates while long-term gains will be taxed as capital gains after indexation,” says Sanders.
In conclusion, Sanders says: “My first job was as a trader at a hedge fund. I can tell you that 80% of the money the firm made was from everyday newbie investors who traded high-risk investments with loads of emotion and far too little strategy.
“More recently I’ve seen loads of people get burnt in the same way in the crypto space as they jump in and out of the market trying to get rich quick.
“My best advice is to treat this new investment category of crypto with a professional and not a newbie investor’s mindset – think long-term, don’t let emotion get in the way, and diversify.
Revix brings simplicity, trust and great customer service to investing. Its easy-to-use online platform enables anyone to securely own the world’s top investments in just a few clicks.
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