I really hesitate to post anything that even hints of trading advice. So when I say this is not investment advice, I’m really not kidding. But since many of my friends and family continue to ask, here’s an update on my approach to investing.
In short, my basic views on Bitcoin haven’t changed much. My basic thesis is that in the long term (10-20+ years), money will follow the trend of everything else in our lives. It will become increasingly Internet-based. Just like our telephone conversations, music, movies, news, messaging, friend networks, professional networks, our photographs, TV, shopping, etc. This transition will take some time. The technology is still barely ten years old, and it still has a long way to go before it’s really ready for broad consumer adoption.
There is certainly no guarantee that Bitcoin is going to be the big winner in the end. It could still fail, although that seems pretty unlikely at this point. Another cryptocurrency overtaking Bitcoin is a more likely scenario. But for now, I strongly believe Bitcoin (the network and protocol) is the likely long-term winner. And if that’s true, bitcoin (the cryptocurrency) is likely a long-term winning investment.
So my focus in the short-term is on learning as much as possible about Bitcoin and its potential competitors, and helping educate others. Any thought of investing is truly secondary for me. But as an investment, I primarily think of bitcoin as a long-term buy and hold play (or HODL, if you prefer). So I’m not a trader by any stretch. But I do make use of a couple of basic techniques that improve a bit on basic buy and hold.
First, I still dollar cost average my purchases. Every month, I convert the same amount of USD to bitcoin. I don’t try to time these regular buys. At times, when the market seems particularly volatile, I step this up to weekly buys. But I just keep buying (and only with dollars that I could afford to lose in the worst case).
Second, I do try to time trades for 5-25% of my holdings when the market seems particularly overbought or oversold. I’m not talking about day trading, or even trades on weekly or monthly scale. I often go many months without making any trades outside of my routine dollar cost averaging.
When planning these trades, I partly follow the commentary of a few friends who are professional traders, and I do somewhat keep an eye on indicators like the Mayer Multiple. But I mostly go with gut instinct. When the charts are going vertical, and everyone is expressing FOMO, I start thinking it’s time to move some bitcoin profits back into USD or gold or something reasonably stable and liquid. On the other end of the scale, when it feels like the market has overreacted in the other direction, people are panic selling, and there is blood running in the street, then I start moving back into bitcoin.
So late last year, when bitcoin was trading between $15,000 and $17,000, and seemingly going to the moon, I sold off a few percent of my holdings. Yeah, I missed the peak by a few days. Then, as it was dropping, I started buying back in around $8000 to $9000. Obviously, I got back in too early. When that became clear, I moved a bigger percentage back into USD and gold. Again, I’m trading at most 25% of my holdings. The other 75% remains in long-term hold.
Now I believe we’re approaching a bottom. It might be $3600. It might be $2800. It might even be under $2000. But in any case, I’m starting to move everything back to bitcoin. I’ve divided my “dry powder” into ten chunks, and I put in ten limit buy orders. Tonight, the first of those buys triggered. If the market keeps moving lower, as I think it will, I will be “all in” on bitcoin again soon. And the net effect of these trades will be that my net holdings, measured in BTC, will have increased, even as the total valuation in USD will have decreased. But that works for me. I’ll soon be ready for the next run up.