Detours Are Always An Option
Whether you are a developer of an up-and-coming Crypto project, or simply on a road trip, detours are always tempting. When the road becomes a bit rough, it is sometimes easier to choose an alternative path. The same is applicable to you as an investor. When prices plummet, it becomes difficult to continue allocating capital, especially if you have already allocated a significant amount. However, if your view is long-term and you have a strong conviction in regard to your decision, then it is actually an opportunity. Traveling along a difficult road with no end in sight can sometimes be rather daunting. This is especially the case with investing, as a road will eventually reach an end but a project may not necessarily bounce back.
This Is The Foundational Fear
When you begin to examine why investors are fearful, it all boils down to this one simple problem. Investors are doubtful of whether prices will rebound. This is especially the case with altcoins, as Bitcoin has a 13-year history of continuously reaching new highs. There are many projects that ultimately die, never to return and investors are concerned that a similar fate may befall the projects they are invested in. Consider how investors would respond to price crashes if they were given a guarantee that the price would again return and even edge higher.
There would be a buying frenzy because the possibility of losing money would have been removed. They would only need to endure a time of loss because they were guaranteed a return in time. This is actually what is at play when certain coins rally after a heavy dump. Essentially, investors are convinced that the price will recover. The current dip is viewed solely as an opportunity that should not be missed. They are certain that they will receive a decent return in time.
Seeking Out The Best Guarantee
This is what a good investor does, he seeks out a project he knows will weather the storm. A project that has tremendous utility and promises even more in time. He looks for a project that has survived heavy crashes in the past and continues to reach new highs. This is the type of coin that comes as close to a guarantee as is possible. This often also means settling for more modest gains, as the most significant appreciation has already occurred. The higher the potential reward, the higher the risk. Micro-caps don’t have this history to refer to, they have not endured bear markets. Small projects are yet to prove themselves and is exactly why so much money can be made in micro-caps.
Simultaneously, they could even fail, which makes these investments very much binary in nature. Meaning, you either win big, or you lose it all. This is not for everyone and is why the “guarantee” approach is better in securing consistent modest gains.
Why Have I Mentioned This?
Well, if you are going to continue allocating capital during a difficult period in the market, you will require some element of confidence. If much of your portfolio or investment strategy is made up of “guarantee-typed” coins, it will be a lot easier to remain with your strategy. This is why many Crypto investors maintain a large allocation to BTC and ETH. There is a strong history of bouncing back and price appreciation. This dynamic attracts investors and helps to provide some level of stability in a very volatile and unpredictable market. Outside of your typical Altcoins, I have always advocated a rather small allocation to micro-caps. For me, this is somewhere in the vicinity of 10%, perhaps slightly more.
The are Exceptions
Remaining true to your investment strategy is very admirable, especially when the market conditions are against you. However, there are times when certain events will warrant an adjustment. Provided nothing changes fundamentally in regards to an investment, I will continue regardless of price. If a project experiences a major setback, I would rather reevaluate than simply continue blindly. One has to determine how bad it is and how it is expected to affect the project in the medium to long term. Remember, you can always resume investment in a project once it experiences a turnaround. However, there is not much recourse once you have continued to throw money at a black hole.
The Sweet Smell Of Victory
When you have been allocating capital on an ongoing basis, something rather powerful begins to take place when your investment begins to move. Very early allocations aid in the multiplication factor that begins to take place. Growth is both fast and massive! This is the moment of reward! Consistent and dedicated allocations over time are now reaping massive rewards. Depending on how long your view is, you can add even more every time the project drops. Even if a coin or token is in a clear uptrend, there will be retracements. In order to protect your initial stack, keeping further investment modest at this stage of the game is wise. Going in heavy at this stage can cut away from your profit if the price retraces again.
Planning your investment journey is important and understanding certain principles is essential in doing it right! When prices drop, it is not an indication of failure. This market is volatile and you need to discern between clear market trends and when something is simply not performing. As mentioned, there are times when you may be required to write a project off. Remain attentive and emotionally neutral and you will be more inclined to make good investment decisions. Thanks for the visit, see you next time!