Dos and don'ts in a roller coaster cryptocurrency market, according to local experts
It was one of the most notorious Super Bowl commercials of the past few years. Film star Matt Damon marched through what looked like a spaceship and talked about humanity’s near successes versus accomplishments that changed the world.
The ad—which was promoting Crypto.com—concluded with the Oscar-winning actor quoting the Roman general Pliny the Elder, who famously said, “Fortune favors the brave.” Since the commercial aired during the Super Bowl, it has been viewed more than 28 million times on Twitter and YouTube.
Something else has happened during that time, too: Crypto investors took a pounding as the two largest cryptocurrencies—Bitcoin and Ethereum—lost more than half their value.
And yet, “what’s amazing is the big boys are making hand over fist on this roller coaster,” says Mike Caligiuri, founder and CEO of Dublin-based Caligiuri Financial. “I believe it’s because these markets are so thinly traded, these big traders can really move the markets.
“A lot of big trading firms are very cognizant of how to manipulate retail investors to buy and to sell. A lot of times, the big boys put in a lot of money to make the price go up in something like Bitcoin. That will encourage retail investors to get in. And then, as soon as the retail investors start buying, that’s when the big boys dump.
“So, my view is that these very sophisticated institutional investors are getting rich at the expense of retail investors.”
But the tales of people getting rich overnight and the commercials featuring celebrities touting cryptocurrency have been a siren song to new investors.
Many local investment advisers remain wary of crypto, however. Kyle Schneider, a portfolio manager and research analyst at New Albany-based VELA Investment Management, says “while we recognize there are many promising applications for blockchain technologies, we don’t offer crypto assets to our clients at VELA as we don’t believe we have a reasonable basis for valuation.”
“It’s kind of the wild West,” says Matt Sands, vice president of Heritage Wealth Partners in Dublin. “The problem is all these guys are unaudited. Transparency is not part of crypto—and that adds to the risk. When you look at regular financial markets, all are highly regulated. The rules are there to keep people from being taken advantage of. When I trade stocks, there’s a record. Everything is very transparent. There’s an audit trail. When you manipulate public markets, the regulators will find out. But with crypto, who is manipulating it? We don’t know.
“Hopefully, the coin you pick will be around tomorrow, but there’s no guarantee it will be. Even these so-called stable coins—one literally went to zero in a matter of weeks.”
But the professionals know that some people still want to at least dabble in the exploding crypto marketplace. To those people, they offer some do’s and don’ts.
DO Consult your personal financial adviser and other experts.
“You’re swimming with the sharks,” Caligiuri says. “That’s the first thing to keep in mind.”
“The regular investing rules apply,” Sands says, “but there’s other stuff that is new. You size positions based on how much they can move in a day, and any exposure has been very, very small. It’s not something that is suitable for a buy- and-hold type strategy. Something that loses 50 percent of its value in six months is not a stored value.”
DON’T Invest more than you can afford to lose.
“Limit exposure to a modest percentage of your net worth and be mentally prepared to lose your entire investment,” Schneider says.
Sands agrees: “Plan for the worst, hope for the best. In other words, plan on it going to zero. So have size limits—this would be no more than 1 percent of your portfolio.”
DO Set targets for buying and selling.
“Define your goals in advance,” Schneider says. “There are no free lunches when it comes to get-rich-quick attempts, but I’m not strongly averse to people who just want to learn more about blockchain technologies by participating in small doses.”
“If people are going to get into Bitcoin, they need to understand what their investing plan is going to be,” Caligiuri says. “So pick a level to get in, and pick a level to get out. Not that that’s going to work, but if people set targets it’s a better way to go about it. That’s what the institutional people are doing.”
DON’T Get emotional (or greedy).
“Because once you get in there, emotions can take over,” Caligiuri says.
“Don’t make large bets, and don’t get greedy,” Sands says. “There are lots of stories about people getting rich, but for every story, there are lots more about people losing everything.”
DO Keep close track of your account.
“Pay attention to commissions, as trading costs are fairly high,” Schneider says.
“A guy I know keeps his Bitcoin on a thumb drive on his car keys,” Sands says. “It’s crazy. What if he loses his car keys?”
DON’T Share (or misplace) your passcode.
“Don’t ever share your passcode,” Sands says. “If you lose your password, you lose your money.”
”Recently, there have been numerous scams to obtain account passwords or issue fake crypto currencies,” Schneider says, “so you should take precautions to only trade on well-known platforms and practice the same security measures that you would use for a bank account such as dual factor authentication.”
DO Research, research, research.
“Consult with your adviser. know your situation, make sure you really understand what you’re doing,” Sands says. “Everyone knows what Apple does, they know what the stock price is based on. How secure is this crypto that you’re looking at? Is it centralized? Is it decentralized?”
DON’T Take the word of paid celebrity endorsers.
“Avoid ‘meme’ coins and new issues being touted by celebrities,” Schneider says. “And don’t rely on Matt Damon for investment advice.”
That last piece of advice is of particular note. Had anyone done even a bit of research about Pliny the Elder’s famous phrase before putting it into Damon’s script they would have known that Pliny said it to encourage a Roman fleet to rush to the aid of people in Pompeii as Mount Vesuvius erupted.
While Pliny did—bravely—go to Pompeii, it’s important to point out what fortune awaited him: He died under volcanic ash.
Other Romans who stayed away from Pompeii (and lived) may have been following another familiar Roman saying: Caveat emptor—buyer beware.
Tim Feran is a freelance writer.