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How to Not Get Hacked: The 80/20 Rule in Crypto

It’s been around for more than a hundred years, it’s the 80/20 rule. I’ll assume you’re familiar with it. If you’re not you don’t read enough. So how can we apply it to crypto? It’s simple, just do these two things and there’s an overwhelming chance you’ll never lose any of your coins. Even if you don’t use 2FA, your email gets hacked, your SIM card gets ported, whatever. It won’t matter if you just…

Never Leave Your Coins on an Exchange

Don’t be this guy. Ouch! Here’s a man who supposedly knows his way around crypto, he’s a fucking engineering manager at a custodianship company, yet he loses a tenth of a million because he kept it on an exchange. For what possible reason? If you are investing and holding onto your coins for years at a time, keeping them on an exchange is like going to a cigar convention with kerosene soaked clothes. Even if it doesn’t get hacked, check this out. Just a few days ago a guy lost $1,000 on Bittrex because they blocked withdrawals for all New York residents. He had to write it off as a loss. What about Quadriga? or Binance? The list could go on for an hour…

Use a Hardware Wallet

Seriously, so simple. A Nano Ledger S costs $70 after shipping. If you have more than $70 worth of crypto it’s worth buying one. They’re dead simple to set up and they make your life easy. Since they can hold dozens, hundreds, of currencies, you only have to remember a single seed phrase for backup purposes. That’s so much easier than trying to keep track of seed phrases and private keys for a dozen different wallets. Plus, these things are unhackable. Send your crypto there and forget it. One note though, NEVER store your seed phrase on a computer. People have lost their stacks when they uploaded pictures of their seed phrase to their Google Drive and a hacker gained access. Write the seed phrase down on paper and keep it somewhere safe. That’s really it.

If you just do these two super simple things your odds of losing your coins must be less than 1%, if that high. Yet people are people and as long as they ignore this stuff, funds will not be safu. That’s unfortunate for them but it doesn’t have to be you.

The State of Crypto & Thoughts on Investing

The damnedest thing about investing in crypto, and I suppose any market, is that nobody knows what the hell is going to happen next. When I wrote this post Bitcoin was floating around $8,700. Now, editing it two days later, it’s down to $8,000. A week ago it hit $9,100. Not many people expected any of this. At the beginning of the year, when it wasn’t clear that we’d exited the bear market, many felt that a healthy expectation for EOY 2019 would be $8,000. That would have been reasonable yet here we are, beginning of June and we’ve already hit $9,000. Just a month ago the analysts were saying to expect massive resistance around $6,000 but when we got there we sliced through it like cooked fat. The market didn’t even hesitate.

What to Make of it

Don’t listen to people. Except for me. Listen to me long enough to realize that you shouldn’t listen to anybody, then stop listening to me. People, so called experts, claim that Bitcoin is going to retrace back to $6,000. Others say $10,000 is imminent. I’ve even heard a few that think new all time lows are on the horizon. It’s wild and it can give you a conniption if you pay too much attention to it.

More than the conniption, the problem is that when you start to take people seriously you are liable to make rash and regrettable decisions. I have no personal experience, every single investment decision I’ve ever made has been flawless, but I’ve heard that other people sometimes make mistakes. I get that. It’s easy to become convinced that something is going to happen. Maybe you’re watching a lot of YouTube commentators and you start to think that Bitcoin is going to $6,000. It makes sense. We’re overbought, the rise since April has been parabolic, no way the price can keep going up like this. So you sell and plan to rebuy later at a lower price. Increase your bags by 20%. Eight hours after you pull the trigger Bitcoin goes to $11,000 and you have to buy back in at $10,000. You just lost money on a sure thing by listening to people.

Learning this, learning how people influence me and my decisions, has been one of the most fascinating lessons to come out of investing. It’s a simple understanding: nobody can predict where this thing is headed in the short term and if you take action because people say certain things, you tend to lose out. Yet the impulse to listen to others is not easily tamed.

The Exception

The exception I’ve found that has proven reliably useful are the guys calling macro trends. One to five year movements. A few months after the parabolic run to $20,000 I listened to Marc De Mesel who, when maybe 90% of the experts were calling for new highs, cautioned about a multi-year bear market. He was right. Now I listen to Bob Loukas who talks about the four year market cycles and where we could be headed in 2020 and 2021.

These instructions I find useful as they provide a framework for investing long term. That’s an important distinction too, investing versus trading. If you’re going to trade, then trade. But if your plan is to invest, for the love of all that’s holy, don’t fall into the trap of trading. There’s about a post a week on /r/cryptocurrency talking about some poor schmuck who thought he was investing, ended up trading, and lost it all. Don’t be that guy.

So that’s the crypto market and how I’m looking at it. We could go to $6,000 or we could hit $11,000 and neither would surprise me. Nobody freaking knows anything and Bitcoin makes a mockery of those calling for prices. Long term investing, however, doesn’t depend much on short term price action. Done right it’s a way to get some money from the market without having to predict prices perfectly. The Warren Buffet approach, he’s done alright I think.