Cryptomania provided me with the largest percentage gains in my trading career. Back in June 2015, I decided to spend $1,000 on a punt. I said, “Bitcoin is either going to $0 or $10,000.”
That was back when bitcoin traded at $283, which bought 3.619 bitcoins. At $10,000, that woulda coulda shoulda meant $36,200 dollars in my pocket. Here’s my offline (and now defunct) wallet so that you can see the activity: https://blockchain.info/address/1LzhWxzdCoPtfVRTu9dxMTRKZoe8oQiEmn
Notice that the first transaction date was in January 2017. I originally purchased those coins through an exchange called Coinsetter. That business was purchased by Kraken, but it wasn’t until about a year later that I grew paranoid enough to take over complete security of my coins.
Bitcoin’s main purpose is to eliminate the need to trust a 3rd party like a broker. Once I grew comfortable using wallets (I recommend Electrum) and especially the idea of cold storage, I finally put my investment completely into the blockchain.
Did I really turn $1,000 into $36,000?
A Big Enough Win
I sold my bitcoin last week at an average price $9,775. It looks like my final profits will total around $28,785.35. Doesn’t that seem oddly precise for an estimate?
So far, I’ve withdrawn $19,727.17 into my bank account with $9,058.18 in cash stuck at the exchange.
Because of an inexplicable hangup verifying my identity, I’m limited to withdrawing $5,000 in cryptocurrencies per day from Kraken. Ok, so I withdraw crypto from Kraken to where exactly?
In order to turn paper profits into actual dollars, I have to transfer some form of crypto into Coinbase. Coinbase is where I did successfully verify my identity. It’s not ideal because they charge a massive spread of nearly 5% of the value. I want to get my money out and that’s my only method. You just suck it up and pay the fee. At Kraken, the spread cost of Ethereum is around 0.25%.
My super convoluted process of getting the cash out is:
- Turn the cash at Kraken back into crypto so that I can transfer the value to Coinbase. That means buying Ethereum because it has the fastest confirmation time.
- Jump through a number of Kraken pages to submit a withdrawal request
- Wait for Kraken to send the withdrawal
- Wait for Coinbase to see and credit the Ethereum transfer to my account
- Sell the Ethereum at Coinbase by paying a massively marked up spread.
- Wait another day for dollars to show up in my bank account
Transfers from Kraken
Transfers to Coinbase
The reason I’ll wind up with about $28,000 in profit instead of ~$36,000 is that I decided to diversify across different cryptocurrencies in the summer. Monero was a huge win for me (bought around $75, sold for $297). Ripple, Stellar Lumens and Ethereum significantly underperformed bitcoin. Whenever I re-enter the cryptocurrency space again, I will do so across multiple assets. What I won’t replicate is diversifying amidst mania. That needs to happen when the markets are totally boring. I underperformed my target because I made a bad decision.
Last week, I went ahead and sold all of my bitcoin as the price approached $10,000. My average exit price was $9,975.
Yesterday, bitcoin touched $19,000 on some exchanges. Doesn’t that drive me crazy that I woulda coulda shoulda double my already significant winnings?
I confess to a small bit of “if would’ve been nice if I hung on longer”. But when I look at the charts, there is 0% chance I would have held on until today. And, there’s noooooo way I’d hold it over the weekend.
I’ve seen many parabolic markets before. I never time the top – it’s best to get out when you already have a massive win locked up. The way I make money is on the entries, by purchasing things when they’re quiet and boring.
The best counter example is from back in 2009. I caught the monster move in the silver ETF (SLV) when it traded in the high 20’s. Instead of buying the ETF, I started buying slightly out of the money calls.
As my out of the money calls became at the money calls, I would sell that strike and roll it into a higher strike. Rinse and repeat.
Soon, my $1,000 punt was up to $6,000. The market was absolutely insane. I knew it was crazy. I knew it was parabolic. But, I was afraid of missing out on even more profit. And so, I put stuck my head where the sun don’t shine and watched up profits evaporate.
Do you know where I finished that silver trade? $800!!! I lost money on a trade that had earned over $5,000.
That will not happen to me again!!!
This current bitcion craze is driven by the CBOE launching bitcoin futures on Sunday. In my opinion, this is an extreme case of buy the rumor, sell the news. So much can go wrong on the futures launch.
- The futures market brings phenomenal quantities of capital into the market. Most professionals will not buy breakouts. The near universal consensus is that bitcoin futures supports the bullish case. As a dedicated contrarian, I predict that it’s profoundly bearish simple because everyone is so confident about the bullish case.
- Many of the spot exchanges offer leverage. What if there’s a massive panic and liquidity evaporates FXCM style? Leverage + Volatility leads to bankrupt businesses. If your money gets locked up in a bankruptcy proceeding, you won’t see that money for years. And when you do, it’ll be pennies on the dollar.
- People always hope to trade the top. But, you know what’s common with tops? Liquidity is super thin. Most of the depth of market on Kraken’s bitcoin is only worth a few thousand dollars deep. Even a small fish like me with 28k would sweep most of the order book. It’s completely unrealistic to expect a decent fill in fast market conditions.
- 100% of the coin exchanges are overwhelmed by the traffic. I see this “trading screen of death” more often than I’m able to log in to my Kraken account.
- The uber-bullishness extrapolates that leverage from the futures market goes into the bullish case. What happens if one of the large prop trading firms applies a few billion in capital to smashing down the price? Joe Retail in the US and Ms. Watanbe in Japan will puke their positions. This 4 year run-up in the price will crash with breathtaking speed if the institutional money comes in bearish.
- Converting crypto into fiat currency is a massive pain. Exchanges like Kraken have the absolute worst customer service in the world. I wasn’t able to complete a withdraw order yesterday because I had a limit order to sell the handful of ethereum in my account and forgot about the order. When I tried to transfer ethereum into Coinbase, Kraken gave me the error message “Insufficient funds”. WTF? I had nearly $15,000 in the account at the time. Customer Disservice takes WEEKS to reply to questions if they reply at all. The only reason I was able to resume withdrawals is that I remembered that the pending order tied up my unused margin. Otherwise, I’d be sweating bullets again this morning wondering how to get my money out.
The fear of missing out on another 25k in profits could have kept me in the market. But I wanted to write this as a trading journal entry to document that I am honestly and truly happy with the outcomes of my cryptotrades. It could’ve been better, but losing $20,000 sounds twice as bad to me as making $20,000. I’d rather use that money to retire 100% of my non-mortgage debt and fund my next punt: long May VIX futures.
Paul Nelson says
it has been a long time since the last time that I put my thoughts and notes . Anyway, I am quite knowledgeable on bitcoins investment on a superficial level or a scratch upon the surface.
However, I simply can not forget what you have done for me when I first bought your product and am overwhelmed with your 4 star services by installing captioned video since I am hearing impaired.
If you do not mind to broaden your horizon a bit. But anyway, I am learning new stuff and how I perceive what is Money/ investment or business. From what I have learned from Forex and how i trade upon these pairs.
That right, we, the forex traders like yourself and other fellow traders and myself are being considered as a band of brothers who share the common interest and that it is forex trading.
As it sound complicated but simplified version that relate to our common interest.
Firstly, we have to recognize forex trading business as spiritual or I would use in my own language, “business” or whatsoever we call this. . I would refer business as a spirit and money is also a spiritual property.
we have to keep the two thing separated and that it is intellectual properties and spiritual properties. Now, forex trading tactics or strategies’ are being considered spiritual. Not based on these indicators that we are trying to use to predict the market moves and so on. but, we have to smell the forex in a spiritual sense. Knowing that is tough on our parts. Knowing that our spiritual or religious backgrounds that differs in our walks of life.
I would rather to keep this short but we all have to be aware that we are dealing with spiritual matters. If we do this first and then our intellectual will follow.
that’s a first lesson for today for all of us by recognizing what is money meant to all of us
email me in privately if you wish . but I may one day require your service to perform software development for me in the near future. Though, i am working on my blueprint or design and have not yet classify the design on my own. Its too early to name my trading blueprint that could possibly to become my cornerstone of my investment strategies . . let keep in touch via emails but keep it privately on my progress and do some strategies testing. .
take care and happy holiday
Shaun Overton says
My faith strongly influences my trading and finances. I see this verse from Matthew as applying to all aspects of my life: “He who seeks to gain his life will lose it. But he who loses his life for my sake will find it.”
Greed = losing
Positive risk exposure = good chance of willing that only comes about when you’re 100% ok with losing.
I was completely ok with losing my original $1,000 risk capital before I placed the trade.
Paul Nelson says
Forgive me for saying so,.
But, I am going to rephrase this. I am talking about owing businesses such as plumbing, electronic and restaurants, investments and play for NFL, NBA and ETC. that also include Gold, silver mining as well. it not the money itself but our lives that involve families, marriages and which schools or universities.
the spirituality that involve every aspect in our lives in a way. Its how we approach the world system by busting the world system. Risk??? perhaps so, but rather a weaker logical argument. successes and failures are spiritual that involve blessings and curses. I can go on and on but, I am learning new every day on what that stuff is. By the way, our health and longevity are also spiritual.
so, trading forex is also spiritual as well. so, I know that my topic is off the point but it is worthy to bring this up and want you to be fully aware of what is surrounding you. and myself. hope this clarify this.
Some interesting ideas. One thing you are probably wrong on though is “Joe Retail” and volatility assumption. The retail traders in BTC are unleveraged small holders. A 50% move up or down means little to them. They won’t be doing that. It is more likely that we’ll see volatility decline with the futures markets. Also, there are already tons of traders trading BTC with insane 100x leverage on existing exchanges. The CME/CBOE products may not even offer enough leverage to really change the equation and/or attract the retail traders.
As for the buy the rumor sell the news thesis, yes that could play out. or give we topped 20k at GDAX and now we’re trading at 15k only then it could have already played. And it is most probable that any decline from CBOE initial launch will likely lead to a more furious rally.
You have a good win locked up. However, the type of binary or forced decision making on your part isn’t really conducive to great trading. It is best to keep an open mind and make use of the new information as it becomes available — which is difficult.
I think there is a lot of excitement but this feels more like the period of time when the crowd’s sentiments are in-tune with the bullish price action. These periods of times can last a long time. It is only at the extremes that contrarian sentiment tends to work. But, BTC trades on a very fast time scale and so it goes through bull/bear phases much faster and so far has tended to always resolve higher. The point I’m mkaing is that a peak does not make a top.
Yes everyone is talking about Bitcoin now but most people aren’t buying it-yet. They are still on the sidelines.
Shaun Overton says
All good thoughts. I’ll be the first to admit that I don’t have it all nailed. My sentiment is that the risk is much higher than the reward. That and the downside at this point hurts more than the reward to the upside. It’s time to take a break for me. I hope to enter at some point again in the future, but I’d need to see both a monster correction and volatility to settle down.
Every monster trade I’ve ever had entered with a yawn and bailed during the parabolic growth.
Thanks for sharing!
Wow just wanted to say congratulations. You totally predicted what is happening now before most people even though this correction was possible. That’s genius. My only wish is that I could have come across your blog earlier, so that I might have been wise enough to sell out when you did. Instead I’m still HODLing away, hoping for a recovery. It seems it has crashed so much now that I’m afraid of selling at the low, only to regret my decision a few weeks later. On the other hand, how much further down can this market go?
I know you wrote this post months ago, but if by any chance you come across this again, I’d be curious to know whether you think the markets have corrected enough for you to be willing to buy back in again (or perhaps have you bought back in)???
Thank you for the incredibly insightful information.
Shaun Overton says
I have no intention of buying back in until the stock market crashes and everyone is hopeless about nearly everything. That’s when I’ll feel comfortable putting money back in.