Investors in the crypto markets may be prone to irrational thinking when bullishness sets in, but advisors can offer a balanced and rational investment strategy that counters the hype, as Onramp Invest CEO Eric Ervin writes today.
Also in today’s newsletter, Robert Stevens explains what crypto whales are and how they can make big waves in the market.
By the way, take a look at our newly unveiled CoinDeskMarkets.com site to find breaking flash headlines, CoinDesk Market Indices sector performance, our new Bitcoin Trend Indicator tool and much more.
What We Can Learn from the Dot Com Bubble When Investing in Cryptocurrency
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The saying goes that history repeats itself, and looking back at my years as an advisor in the 1990s, I can see just how true that is.
The current rush of interest in blockchain and cryptocurrency investing feels very similar to the early demand for technology stocks. During the Dot Com Bubble, investors saw the developing value of tech, and stock prices soared based on the promise of vast wealth creation and disruption.
However, as we learned in the subsequent “tech wreck” of the early 2000s, expectations have nothing to do with reality, and many investors lost everything, including what they made in the previous bull market.
In the ’90s, many advisors’ clients wanted “all in” on tech stocks. Clients were losing faith in their advisors because diversification wasn’t working. During the bubble period, the NASDAQ Composite index, which is heavily weighted towards technology stocks, rose from around 1,000 in 1995 to a peak of 5,048.62 on March 10, 2000. This represented an increase of more than 400% in just five years.
Even the best, most trusted advisors had difficulty convincing clients to avoid the “shiny object” and stay the course with a diversified portfolio of stocks and bonds.
As an advisor, I chose a different approach. Rather than alienating the client by telling them what not to do, I was far more interested in building a collaborative process. If they wanted to sell everything and put it all in Qualcomm, my response was, “Yes, Qualcomm has really performed lately; perhaps we should create a small allocation to Qualcomm and some other telecom stocks. What other stocks are you considering for this more aggressive part of your portfolio?” The clients felt heard, and I was able to protect them from their own worst enemy, which was greed.
The lesson I learned through the Dot Com Bubble and that I can now impart is that there is a way to exercise caution while still giving your clients exposure. Small doses of the speculative asset class help satisfy the client’s urge to go “all in” while protecting them from the inevitable upheaval that comes with major innovation.
What Are Crypto Whales and Why Are They Important?
(Abigail Lynn/Unsplash)
Crypto whales are some of the most influential entities in the crypto space. In fact, they are so important that individuals and tools track their activities to predict price movements.
Simply put, crypto whales are individuals or organizations that own a large amount of a coin or non-fungible token (NFT) collection. The size of the holding has to be large enough to cause a ripple effect on the price of the coin or NFT if the holder sells it all at once.
For example, a bitcoin (BTC) whale is an entity that owns a large amount of bitcoin, usually a minimum of 1,000 BTC or $10 million and above. A holder could also be an ether (ETH) whale, another altcoin whale or an NFT whale.
The threshold of determining whether an altcoin holder is a whale or not depends on the market size of the coin in question. As such, although $10 million worth of BTC is the threshold for identifying bitcoin whales, the minimum requirement may be lower for altcoins, especially those with small market capitalization.
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Macro catalysts are lining up for bitcoin, a new report from the brokerage firm said.
Congrats on making it this far! On occasion, we’ll give our loyal Crypto for Advisors readers the opportunity to claim DESK, our social token, which is a mechanism for returning the value of engagement to the users who create it.
Disclaimer: The information contained in this newsletter, and any information linked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. You should seek additional information regarding the merits and risks of investing in any cryptocurrency or digital assets.
