Five Rules for Handling Crypto Volatility

Crypto is back in a bear market…

That’s a fall of 20% or more from a peak.

And since its all-time high last November, bitcoin (BTC) has plunged 46%.

Meanwhile, the world’s second-most valuable crypto, ether (ETH), is 47% below its recent peak.

Things are even worse for meme token Dogecoin (DOGE). It’s down 53% from its peak.

Longtime readers know these kinds of wild price swings are the norm, not the exception, in the crypto market. I (Chris Lowe) have lost count of the times I’ve written to you about how to handle crypto’s infamous volatility.

But if you’re a newer investor, you’re likely feeling queasy… obsessively checking your portfolio… and even thinking about selling.

That’s natural. This kind of volatility can be scary. But selling now means missing out on the potentially life-changing gains on offer for long-term holders. And I’m here to make sure that doesn’t happen to you.

So today, we’ll go through five rules to help you get through spiking crypto volatility.

Following them won’t guarantee transformative wealth in crypto. But not following them almost guarantees you’ll fail.

So consider printing this email out after you’ve read it. Stick it on your fridge or the wall in your home office.

The more you internalize these rules, the greater your chance of joining the ranks of crypto millionaires.

Rule No. 1 – Know Your History

For stocks, a 50% plunge happens maybe once a decade.

Take the S&P 500 – our stand-in for the U.S. stock market. It’s fallen by that much only once in the past 20 years.

It dropped 57% in the 2007–2009 bear market.

It came close just one other time. It dropped 49% in the bear market that followed the dot-com crash that began in 2000.

But crypto has always been way more volatile than that.

Take bitcoin, the first and most popular crypto. This is the seventh time bitcoin has fallen 50% or more since it started trading in 2010.

But in that same period, bitcoin has risen over 2 million times more than the U.S. dollar. That makes it one of the best-performing assets in history.

That’s why colleague and world-renowned crypto investor Teeka Tiwari calls crypto volatility the price you pay to achieve life-changing wealth…

The average crypto investor will not become wealthy. They let day-to-day volatility outweigh their common sense and the initial research that got them into the market.

In times like this, when we see bitcoin and other cryptos down… It’s important to pull back the camera and focus on the big picture. You can’t let day-to-day price action drive your decisions. It’s the worst way to act if you want to make real wealth.

This brings us to the next essential of crypto investing…

Rule No. 2 – Learn to Do Nothing

Most people think they have to do something when volatility kicks up.

But successful investors know to sit through times like these and avoid the temptation to panic sell.

Fidelity Investments reportedly reviewed its client accounts to see which type of investors had the best returns between 2003 and 2013.

Amazingly, the investors with the best returns were folks who’d died and had their accounts frozen while their estates handled the assets.

Now, there’s some dispute over whether that study happened. But the principle is sound. The less you check your portfolio, the less likely you’ll do something stupid like sell at the bottom of a bear market.

Rule No. 3 – Always Be Diversified

When bitcoin and other cryptos are going to the moon, FOMO (fear of missing out) rockets with them.

There’s a temptation to invest as much as you can in crypto… at the expense of keeping a diversified portfolio.

That’s great in a bull market. You’ll feel like a genius as your entire portfolio soars.

But, boy, will you get a shock when a bear market sets in.

If you’re 100% invested in crypto… and the market plunges 50%… it’ll cut your portfolio in half.

The pain will be so great, the pressure to sell and move to the relative safety of cash will be too hard to resist. You’ll lock in losses.

That’s why Teeka puts asset allocation at the center of his investing strategy. That’s a fancy way of saying he never puts all his eggs in one basket.

He’s the biggest crypto bull I know. But he recommends his readers allocate only 2% to 10% of their portfolios to crypto.

That way, even if you’re at the high end of that range, a 50% drop in crypto prices will take down your overall portfolio by only 5% (50% of 10%).

Rule No. 4 – Price and Fundamentals Are Not the Same

Ben Graham is the father of value investing. He was also super-investor Warren Buffett’s mentor.

Graham said the best way to think of the market is as a moody teenager.

Sometimes, he’s on a high… and bids up assets beyond their fundamental values. Sometimes, he’s grumpy… and will sell the same assets for less than they’re worth.

Right now, Mr. Market is grumpy. And not just over crypto. Stocks are getting hammered too.

The S&P 500 is down 11% from its recent high. And the tech-heavy Nasdaq is 17% below its recent high.

This is largely due to the Fed’s talk of raising interest rates to fight inflation.

But bitcoin and similar cryptos are inflation-proof because their codes limit their supplies.

They’re plummeting along with other risky assets. But nothing about their fundamentals has changed since October – when bitcoin was trading near double its current price.

Unless something about crypto changes fundamentally, ignore Mr. Market’s mood swings.

Rule No. 5. – Have a Contrarian Mindset

If crypto is part of your portfolio, lower prices cut both ways.

They hurt the value of your existing positions. But they also allow you to add new positions to your portfolio at lower prices.

Investors often forget this. But the key to successful investing is to buy low and sell high… not the other way around.

This gets to the heart of what it means to be contrarian.

Most investors run with the stampede. When the crowd panicking and selling, they’re also selling. When the crowd is euphoric and buying hand over fist, they’re also buying hand over fist.

But the slam dunk wasn’t to buy bitcoin as it closed in on its all-time high of $67,617 last November. It was to buy during the pandemic-induced market panic in March 2020, when the crypto was heading toward a low of $4,917.

If you’d bought in at that low, you’d still be up 638% – even after bitcoin’s recent plunge.

That’s the essence of contrarianism. You know the crowd is often wrong and bet against it.

That’s why I’m so excited about Jeff Brown’s big NFT event on Wednesday…

Over the last year, we’ve seen the exponential rise of NFTs (non-fungible tokens).

As regular readers know, these are digital assets that are cryptographically secured and authenticated on a blockchain.

They can be digital works of art or collectibles. Bands can release albums in the form of NFTs. They can also represent scarce “land” and fashion items such as sneakers for your avatar to wear in the metaverse.

And Jeff, our tech expert, sees massive growth in the NFT space.

Sales there reached $340 million in 2020. In 2021, sales hit $25 billion.

That’s a 74x jump in one year.

But NFTs still haven’t reached mass adoption. Jeff says that’ll happen this year. And he’s spreading the word on how this will create a new opportunity for early investors to make fortunes in crypto.

He’s found three NFT coins he says could help you get there – handing you decades of tech gains in just months.

That’s why this Wednesday, January 26, at 8 p.m. ET, he’s holding a special presentation called The NFT Moment.

He’ll show you how to get an early stake in the NFT trend. You’ll even have the chance to get a free NFT from Jeff.

To learn how to claim your NFT – and his top recommendations in this space – reserve your free spot right here.

Regards,

Chris Lowe
January 24, 2022