Going Against the Crowd: Crypto Markets Remain a Good Bet

Echoes of Past Meltdowns

“The time to buy is when there’s blood in the streets.” – Baron Rothschild

It’s common knowledge that the cryptocurrency markets have been taken a beating for a while now. We can look at why they are down, but we must then ask ourselves an important question: are coins like Bitcoin, Ethereum and Litecoin really a worse investment today than they were a month ago?

Warren Buffett asked himself a similar question about the Coca Cola Company after Black Monday 1987. The answer he came up with made him billions.

Has the Fundamental Value of the Coin Changed?

Take Litecoin, for instance. Is it really a worse investment today than it was a month ago? What has changed? We have seen more negative volatility (no one complains about volatility when the markets are up), but that’s nothing new in the cryptocurrency markets.

If the SEC says no to a Bitcoin ETF, that will not affect the long-term impact cryptocurrencies will have on the world economy. It will only delay it a bit. It’s important to remember that all markets are manic depressive and reactions are seldom proportional. One of Buffet’s core principles applies here: ‘to succeed you will have to be greedy when others are fearful and fearful when others are greedy.’

If nothing has happened that affects cryptocurrency’s ability to succeed long-term, then the manic depressive markets may have put it on sale for no significant reason. And when something is on sale that is usually a good time to buy.

Black Monday
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Black Monday, 1987: some sat and wept, others made billions. Image credit: flickr,

Going Against the Crowd

So what stops you from buying when the markets are low? One thing that might be holding you back is a lack of knowledge. If that’s the case it might be a legitimate reason not to buy. You should never buy anything without first doing your due diligence, but thanks to the proliferation of information on blockchain and cryptocurrency on the internet, you have no one to blame but yourself for investments made under the cloud of ignorance.

Besides, a lack of knowledge didn’t stop anyone from buying Bitcoin last autumn when it was going up a blistering pace. The hype was intoxicating, and few people could resist buying into it. Emotions and greed drove their buying decisions, not knowledge or temperance. They acted in direct violation of Buffett’s maxim quoted above.

Regardless of which market you invest in, the psychological aspects of investing will be a treacherous road to navigate. Often you will have to go against the crowd, and while this sounds easy in theory, it’s much harder in practice. We are all surrounded by the markets’ noise, to say nothing of friends, family, and a media all too eager to report with breathless enthusiasm on the slightest trend. It is very difficult to not become affected by all the opinions out there.

All markets are driven by psychology. The effects of that becomes even more extreme in the cryptocurrency markets because of extreme volatility. If you are willing to arm yourself with the right knowledge and have the mental ability to go against the crowd you will reap big rewards over time.

 

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Hans Norén is a staff writer for Block Telegraph. He covers cryptocurrencies mainly from an investment perspective. Norén has been an active investor in the stock market for over 25 years. He is also the author of several books and eBooks about investing.

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