An unlikely crypto fan
30th November 2020 |
Hours can feel like weeks, weeks like months, months like years.
Time works in a different way when you’re involved in the crypto markets. Last week gave people who are new to this space a taste of what that looks like.
After many crypto across the board were shooting higher, things came to a grinding halt late in the week. Some called it a “crash” but the reality is it was just a minor pullback.
Still, if you’ve got a bunch of crypto and in one swift movement you see the fiat-converted values of those fall by 10%, 20%, in a short space of time, it can be scary, and it can also make you do things that aren’t the smartest thing to do.
On Thursday, bitcoin was up around $19,300 and screeched to a gut-wrenching $16,700 in a matter of hours. Big fall? Well, not so much…
Other crypto were down 10%, 15%, 20%, 25% (and more) from their highs during the week.
It’s one wild ride isn’t it?
This is why one of the most important lessons you’ll find in crypto is the ability to remain rational and to keep emotions in check. Also, to have perspective.
In 2017 on its way to all-time highs, bitcoin had four periods where it “crashed” in excess of 15% in a short space of time. That includes one that saw it head south 36% which played out over two weeks.
Now put yourself in that position today. What would your mindset be if bitcoin were to head 36% lower from here over the next two weeks?
This is a scenario that you need to prepare yourself for. You need to be fully aware of how you would react in that situation. You need to be very clear ahead of time what you’re trying to achieve with your foray into crypto.
You see, if you’re looking to try and turn a fast profit, these sorts of wild swings are very difficult to predict. It could be a result of a major crypto pioneer tweeting something, it could be a major holder dumping bitcoin, it could just be for a completely unknown reason.
There are plenty of chartists that try to trade crypto markets like stocks and shares. Good luck to them. Crypto markets don’t work like stockmarkets – they might appear to, but in reality they’re moved with greater ease and less effort than a traditional market.
That’s why I advocate a long-term strategy to crypto. That also means when you see dips like last week, you are able to put everything in perspective and not get worried about it too much.
Like I say, this isn’t the first crypto cycle we’ve seen. It’s likely it won’t be the last. It’s also likely that going forward you’ll see pullbacks like last week. It might be 10%, 15%, maybe even 30% at some stage.
But the strategy isn’t to jump in and cash out in a few months. There’s plenty of YouTube “influencers” out there if you’re looking for that kind of thing. The aim here is to help you really understand the underlying big picture and how that fits into a long-term crypto wealth plan.
With all of this, what a lot of people also need to realise is that according to the government, this isn’t some free ride either.
Your crypto trades or anytime you sell one crypto for another or back into fiat money is a taxable event according to HMRC.
What you need to do is keep records and have access to buys and sells and trades over time. You also need to ensure you’ve got the advice from a registered tax professional about your tax obligations and liabilities.
Pleading ignorance is no defence. You need to ensure you’re compliant with HMRC and how you’re trading your crypto. Of course there are things in place like annual limits and the tax system is complex and difficult to understand normally – that’s why it’s really important you understand the need to get proper tax advice at any time you’re selling your crypto (be it to another crypto or back to fiat money).
This actually was one of the topics I spoke about when I was interviewed last week by an unlikely crypto advocate, Nigel Farage.
That’s right, last Friday I headed into the office in central London to sit down and have a one-on-one with Mr Farage about bitcoin, crypto and everything taking place.
It’s the first of a number of chats we’re likely to have about crypto. He was keenly interested in what is happening, how important crypto is becoming and how people can learn more that perhaps have not yet moved into crypto.
In fact, I was warmly appreciative of his openness to it all and the realisation that crypto has the potential to help a lot of people build wealth. If you’d like to see my one-on-one with Farage, you can head over to our sister publication, Fortune & Freedom, here.
Now one of the other things that I briefly discussed with Farage at the very end of our chat was something I highlight in my book, Crypto Revolution: Bitcoin, Cryptocurrency and the Future of Money. And that is Ethereum.
“Crypto to Know” Number 2: Ethereum
In my last update I of course made note that the first important crypto for you to get to know better and understand how it works is bitcoin.
For me, stepping into this space for the first time, there’s no better place to start than the one that really sparked it all, bitcoin.
But bitcoin is not the only crypto out there. There are literally thousands of different crypto – some good, some bad, some could change the fabric of our world, some might try but ultimately fail.
It’s a diverse and extraordinary world. However, when it comes to what I would consider to be potentially world-changing crypto assets, I believe Ethereum is also one of the crypto that you really need to get to know as well.
Ethereum is very different to bitcoin. Whereas bitcoin is more like a store of value and a currency, a medium of exchange, Ethereum is more like a data network.
A good way to think of Ethereum is like the internet. But not the World Wide Web, like the actual protocols that make up the internet, TCP, IP, MAC, SCTP and other acronyms that most people have no idea about.
Ethereum as a foundation layer network allows for applications to be built and exist on top of it. That could be ecommerce applications, data networks, financial services, even autonomous organisations.
A big part of this is through “smart contracts” which are programmable contracts that can be executed on Ethereum’s network. It’s a big, wide-reaching and potentially game-changing network of which the ETH token is central to, ensuring all parts of the Ethereum network continue to function.
Importantly, Ethereum also goes through development and upgrades on its pathway to delivering a global network, almost rebuilding the internet that we know today, but in a decentralised and distributed manner.
There’s a lot of facets to Ethereum, far too many to get all down in one hit. That’s why it’s important you get to know Ethereum at its core level now. As we continue to talk to you more about crypto, different networks and how they are developing, you’ll come to see Ethereum is at the core of many developments in this space.
For that reason, it joins bitcoin on our list of “Crypto to Know”. A good starting point to learn more about Ethereum in the meantime is its information site which you can find here. Take some time to read through the materials and get familiar with it all.
I’ve also been going back through some archives of mine and some old crypto content I’ve written over the years. I’ve done this because there are a number of topics I’ve covered before that I believe will help your understanding of crypto and also potentially answer some burning questions you might have.
Keep an eye out in the SV’s Crypto Network tab over the next fortnight for some of those as I republish them, and I’ll also link out to them in next week’s fortnightly update.
In the meantime keep sending through feedback and questions to sam@southbankresearch.com, I won’t necessarily be able to answer all questions in each fortnightly update but will try and get around to them or get a response back to you as quickly as possible.
Regards,
Sam Volkering
Editor, Sam Volkering’s Crypto Network
