I thought I would write an article about bitcoin because it might be valuable to go over what happened.
I bought some bitcoin in 2017 and made some money with it.
In fact, percentage wise it is the best trade I have made in the past few years.
However, I still think I messed up with how I traded bitcoin.
What I Did Right
Before I explain what went wrong I thought I would briefly discuss what I did right.
I went long Bitcoin in January 2017 just when price was about to break $1000 and I held it until October when prices hit $6000.
At the time, there was talk of new products coming up like Bitcoin cash and strange events like bitcoin forks. The whole world was going bitcoin crazy and we had just had a huge rally past the $6000 level.
I felt that it was a good time to take profits so I sold my bitcoin stash and banked a roughly 600% price gain.
Soon after I sold, bitcoin did in fact drop by about $500. However, it later regathered momentum and went on to hit $19,000 before crashing back down in 2018.
On paper, the trade I made in bitcoin looks pretty decent. A 600% return is not to be sniffed at and even when bitcoin smashed $19,000 I felt pretty good about it.
I also felt good that I didn’t lose any money and didn’t chase prices even when it was going up day after day.
However, I did make some mistakes which I will talk about now.
First Mistake – Not Buying Bitcoin Earlier
The first mistake I made with bitcoin is that I joined the party too late.
I’m not exactly sure when I first heard of Bitcoin but I know that I took a look at it in 2013.
And in 2015, I travelled through Asia and met a load of people heavily involved in cryptocurrencies, be it building apps, blogging or day trading.
Some of them were doing quite well while others had lost a bit of money.
At the time, I remember thinking that bitcoin was probably just a fad and that we’d probably already seen the highest price it would ever make.
I chose to ignore it and pay attention to other things.
However, I think I should have given it more attention.
Bitcoin was extremely cheap back then. If I had bought some bitcoin in 2013 I could have made a fortune by the end of 2017.
Second Mistake – Not Buying Enough In 2017
Although I did eventually latch on to bitcoin and make a decent gain, the second mistake I made was that I didn’t buy nearly enough to make it worthwhile.
A 600% gain sounds good on paper but remember a 600% gain on ten bucks is only 60 bucks.
I only put $500 into bitcoin. It was basically a bit of fun and nowhere near enough to move the needle.
What I should have done is study the market a bit more and then made a much bigger bet.
Third Mistake – Not Shorting It In 2018
As I mentioned already, when bitcoin hit $6,000 I decided it was a good enough time to sell my position. However, I still wasn’t convinced that the market had hit a peak at that time.
When it hit $10,000 I was becoming much more skeptical and I remember telling friends not to buy as this was a bubble waiting to pop.
By the time prices surpassed $15,000 everyone had gone bitcoin crazy. Even my parents with no interest in finance were talking about it.
I was utterly convinced that this was a major bubble that would soon come crashing to earth. I remember tweeting about it, blogging about it and looking at ways in which I could go short.
In fact, in December 2017 I wrote a blog saying that bitcoin could be the “biggest bubble of our lifetime” and that the launch of bitcoin futures on the CME could lead to natural “price discovery and therefore a steady downward trend”.
I felt strongly that the opening up of bitcoin to the futures markets would cause a fundamental shift to the way it was trading.
However, I ended up doing nothing about it.
Despite my strong intuition that bitcoin was in a major bubble I decided against shorting it and so I missed out on capturing any gain from the impending crash.
Part of the reason for this was that shorting bitcoin was difficult. Initially it could be done only on special crypto exchanges or using products with high margin rates.
When bitcoin futures launched, I was only able to go long and not short unless I moved to a different broker.
I therefore put shorting bitcoin into the too hard pile and decided to ignore it.
I now think that was a mistake.
Easy Money Doesn’t Come Easy
The problem in finance is that making money is always difficult. You can’t expect it to be easy so sometimes you need to make a bit more effort.
I should have gone the extra mile, taken a few risks and shorted it.
I didn’t have to put all my money on it but I should have trusted my intuition and gone short a few quid.
The Real Mistake I Made
Of course, all of this posturing is in hindsight and there are many different scenarios that could have developed if things were different.
Bitcoin could have died a death in 2013 and cryptocurrencies may have never gathered any attention at all.
Or bitcoin could have hit the $6000 level when I sold it and fallen back to earth soon after.
Or, instead of crashing in 2018, bitcoin could have become even stronger after the CME launch and actually become a legitimate replacement for the US dollar.
The truth is that missing out on a big move is not necessarily a mistake.
The real mistake I made with bitcoin is not paying it enough attention.
Keeping An Open Mind
Instead of dismissing cryptocurrencies as a fad I should have studied it more closely and been more open minded about it’s potential.
Missing out on a big win in bitcoin honestly doesn’t bother me. I know lots of people lost their shirts chasing it so I’m grateful I’m not one of them.
However, I do believe it’s important to look back and try to improve.
If I had studied it more I would have been in a better position to understand its price moves. I could have looked into new investing ideas or built some trading strategies around it.
I think this is an important lesson for me going forward – to be more open minded about different points of view and to have more courage investing in new ventures.
Maybe that’s true for you as well.
Joe Marwood specializes in stock trading and mechanical trading systems. If you are interested in quantitative trading strategies, code, tips and courses make sure to check out our full program at Marwood Research.